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I am getting an error 403 forbidden on creating new weapplication or extending web application although I have signed in as System Account. I am able to create new sitecollection from central admin. Previously it was working as expected and never faced this kind of issue. I have already rebooted the server, but still this issue exist. Please help...

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403 Forbidden Errors are usually Authentication Error's. You mentioned you are logged in as System account, that might not be the case then. First try checking ULS Logs and see what happened on that specific event. Also Please Take a look at this article this might help. http://support.microsoft.com/kb/2543306

In some instances stsadm -o updatefarmcredentials can help too. Good Luck.

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If you're creating a web application with a host header and you get the error when accessing the new Web application from a browser on the server itself, then there is a good chance that what you experience is the result of the Loopback Check which MS has put into IIS.

You can disable this by following KB896861.

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