The former Aston Villa and Sunderland boss is being widely tipped to replace the 74-year-old Italian, who left the role by mutual consent on Wednesday after overseeing back-to-back defeats against Sweden and Austria.
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"Martin has the job as far as I am aware. Absolutely nailed on, a shoo-in for it," McCarthy, who managed Ireland for six years, told BBC Sport.
"He is out of work and he is a good manager. So it is my understanding he has the job - so good luck to him."
McCarthy reacted indignantly when quizzed on his own links to the role, admitting that it was no shock to see his name among those being touted.
He said: "I am not surprised because I did a good job last time."
A Northern Ireland international in his playing days, O'Neill led Celtic to three Scottish titles, as well as three Scottish Cups, also securing two English League Cup wins with Leicester City.
He departed the Stadium of Light in March after an eight-game winless run that left the Wearside club facing a relegation dogfight - which they narrowly escaped under new boss Paolo Di Canio.