You are under no obligation to disclose this at any point until you have accepted either the permanent position or the new contract.

The fact is, if you do disclose the possibility and it costs you a possible position and then you don't get the permanent position you are currently contracting at (for whatever reason), you have just closed a door that could have remained open.

Keep your options open.

It may feel unethical to you, but we can't tell the future and the unexpected can always happen - in particular in the contracting arena, though also in the permanent arena, to a lesser degree. Most employers looking for employees know that the "market" is volatile and people who are available one day are gone the next.

If asked, do not lie - you should explain your position and that if the offer from your current employer does not represent your true value that you will not accept.