Nominations for the seat, which Labor holds with a margin of 6.9 per cent, will close this Monday.
Former NSW premier Morris Iemma is understood not to be a contender despite earlier speculation.
A preselection ballot is due to be held next month, ahead of the September 14 federal election.
Mr McClelland, a former attorney-general and experienced barrister, has announced his retirement and is believed to be keen to take up a vacancy on the NSW Industrial Relations Commission.
It is not yet known whether he will quit federal parliament before taking up a new role, potentially triggering a by-election, or retire at the election.
Mr O'Brien, the assistant secretary of the NSW Public Service Association, is widely seen as the frontrunner for the candidacy.
Mr McMahon made a name for himself when he sold the mayoral car to build a children's playground.
Kogarah mayor and accountant Nick Varvaris has been endorsed as the Liberal Party candidate in the seat.