The most common and most likely answer to this crossword clue is the 8 letter word WASHROOM
I've seen this crossword clue in The Daily Telegraph
W
A
S
H
R
O
O
M
More clues leading to the result WASHROOM
Buddy explains!

The straight part
We know that "loo" is the straight/definition part of the clue. The straight part is often a synonym or definition, in this case loo = washroom.The cryptic/wordplay part
In cryptic crossword there's often an wordplay/cryptic part as well.This part involves a more complex hint, such as an anagram, homophone, hidden word, etc.
Sadly, We don't have an explanation for this specific crossword clue yet.
What does WASHROOM mean?
WASHROOM noun- A room intended to wash the face and hands.
- A room with a toilet, particularly a public toilet.