This is a method for dynamic and distributed management of Virtual Path Connections (VPCs) in a hierarchical ATM network. VPC parameters, including VPC type (heterogeneous or homogeneous), source node characteristics, end-to-end VPC constraints (GoS and QoS), and the number of on-demand connections to be supported, are determined or specified. Network resources, such as bandwidth and buffer size availability, are also determined. The parameters and information relating to the network resources are sent to a connection server that computes an optimal physical route for the VPC, allocates resources along the computed route, and notifies switches along the route of the new allocation of resources. The switches then change their respective configurations to accommodate the new allocation.