Please advise: I am a permanent employee and applied internally for a new position. This post however has been advertised as a 3 year contract post. If I get this post what will happen - will I have to resign my permanent position?
Firstly, simply because a position is advertised as being fixed-term does not mean that it is non-negotiable. It is possible to be "re-assigned" to do the work that the available position would entail. The danger is that there could possibly be a valid reason for the position being fixed-term, such as if the necessity for the position is expected to fall away after three years. Even if you were still a permanent employee, your position would become redundant.
The only way for your employment to be made fixed-term (if you are currently a permanent employee) is if you sign a variation agreement or a fresh contract of employment. Apply for the position and propose that the position be made permanent. Remember, you'd still have to agree to any changes in your employment status.