A senior party figure confirmed reports that the two-time gold medal winner wants to take on mayor Ken Livingstone in the 2004 election.
Lord Coe served as William Hague's chief of staff - and judo partner - after losing his Falmouth seat in the Labour landslide of 1997.
If he does seek the nomination, it is likely his main challenger will be former transport minister Steven Norris, who fought the first mayoral election for the Tories.
Also, Mr Norris has a much stronger base in the London party - through canvassing in local elections - and it, rather than Central Office, will organise the contest.
'Steve Norris is well organised with a better network of support. If Seb Coe's going to join the race to be candidate he had better get on with it,' said the source.
While he would be a more recognisable public figure, doubts linger over whether he could mount a serious challenge.
Lord Coe's fame as an athlete has not been matched in the political field, where he is seen more as a backroom operator in the party.
Mr Norris has also made liberal public pronouncements on issues such as race and homosexuality, seen as being more in tune with the views of Londoners, while Lord Coe is seen as a more mainstream figure.
A spokeswoman for the Conservative Party refused to comment on Lord Coe's possible candidacy.
'We will encourage all those interested to come forward,' she added.
The deadline for Tory nominations is likely to be the end of this year, with the winner declared next year.
Labour's nominations close on 13 September, though a date for declaring its candidate has not been set. The Lib Dems' deadline is 13 December, with the winner announced at its spring 2003 conference.