The Nigerian leader has repeatedly said he would comply with the constitution, which limits presidents to two four-year terms. At the same time he has not rebuffed a campaign by his key supporters to amend the constitution.
For Obasanjo such a move would be a chance to make history as the longest-serving Nigerian ruler, but for Africa's most populous country, with more than 126 million people, it could be a recipe for turmoil in a tinderbox of intertwining tensions.
Many Nigerians smell a plot. "It is now certain even to the naVve that Obasanjo, as puppeteer, is employing the excessive powers inherent in the presidency, to manipulate the peoples of this country to acquiesce to his self-perpetuation scheme," said Chuks Iloegbunam, a political analyst and newspaper columnist.
Last week, pro-Obasanjo campaigners scored a victory when the Senate's constitution review committee recommended a three-year extension of tenure for the president and all 36 state governors.
But recent developments have roused powerful political forces. The political elite in Nigeria's predominantly Muslim, Hausa-speaking north - which long dominated power in the country - considers the move an affront. Following independence from Britain in 1960, Nigeria was led by northerners for 32 years.
The north had backed Obasanjo for the presidency in 1999 to end more than 15 years of military rule because he was seen as a moderate southerner who would protect their interests. It was a move to assuage deeply hurt feelings in Obasanjo's ethnic Yoruba region in the southwest after an election in 1993 won by his millionaire townsman Moshood Abiola was annulled by the northern-dominated military government then in power.
The northern political elite argue that it should have a turn at power again after giving the mainly Christian south the chance to rule for eight years. These leaders are furious that Obasanjo seems poised to renege on what they consider an agreement.
The Arewa Consultative Forum (ACF), a group of the most powerful northern political leaders, met in Kaduna on Tuesday and declared their resolve against a third term for Obasanjo.
"We will resist any attempt to prolong Obasanjo's tenure beyond May 2007," Aliyu Hayatu, a spokesman for the group, told reporters "It will not be acceptable to ACF and the people of the north.We have had enough of him."
The third-term campaign is equally unpopular among the ethnic Igbo of the southeast, who say it is their turn. The Igbo, the Hausas and the Yoruba are the three main ethnic groups among some 250 in the country. Igbos argue that the Hausa-Fulani and the Yorubas have dominated power for too long and demand that 2007 is time for one of theirs to take the helm.
A top U.S. official recently expressed worry about a third-term effort. National Intelligence Director John Negroponte has described the 2007 Nigerian elections as the most crucial upcoming poll on the continent, with potential for spreading turmoil to other African countries.
"Speculation that President Obasanjo will try to change the constitution so he can seek a third term in office is raising political tensions and, if proven true, threatens to unleash major turmoil and conflict," he told the Senate Armed Services Committee on 1 March.
A third-term bid from would aggravate not only power rivalries, but also long-simmering secessionist movements in the country. The separatist Movement for the Actualisation of the Sovereign State of Biafra has a considerable following among Igbos in its demand for the revival of the failed Republic of Biafra that led to Nigeria's bloody civil war in the late 1960s.
Similarly ethnic minorities in the adjoining oil-rich Niger Delta protest decades of domination by the majority that has deprived them of control over the oil wealth produced in their region. Militants of the ethnic Ijaws have mounted an increasingly violent insurgency, vowing to cripple the country's oil industry.
Upheaval in Nigeria would have fallout well beyond its borders - disruption of oil supply, emboldened secessionist campaigns, mass displacement of citizens and general instability in a region already seeing widespread turbulence.
Some of Obasanjo's critics think Nigeria is already seeing the first waves of politically motivated violence. When protests in Muslim countries followed the publication of cartoons depicting Prophet Mohammed in February, the worst violence worldwide was recorded in Nigeria, where at least 130 people were killed.
Muhammadu Buhari, Obasanjo's main challenger in 2003 elections and like him a former military ruler, insisted that the main underlying cause of the violence was "the government's mad rush for a third term" irrespective of what the citizens want.
In a front-page editorial on Wednesday, the Vanguard national daily newspaper accused the Senate constitution review committee of using "rough tactics" to push through its propositions despite evident widespread opposition by most Nigerians.
"Nigeria appears to be on the drift just because of the proposed extension of tenure," the paper said, calling for "a constitutional review which is a product of consensus, a constitutional review that will support all to build a nation where no one is oppressed, where justice and equity reign."