When I put a contract on a house and entered a specified time frame for the owners to respond with an acceptance, denial or counteroffer. The real estate agent called requesting two extra hours. I said okay. It has been almost two days from the time they were suppose to be back with me. All they keep doing is calling and asking if that is going to be my best offer. I believe they are holding my contract until another interested party is able to obtain financing. Is there naything I can do? Is this a legitimate thing for the real estate agent to allow this to happen on the sellers part?

If the real estate agent called asking for two extra hours, then that is all they get. You are probably right, they are holding your contract to start a bidding war which is entirely unacceptable in the real estate market but I don't think it is illegal.

They asked for 2 hours and have taken 2 days? Why aren't you cancelling the contract?

I agree with Scott. Your best option at this point, in my opinion, is to send them one last written message along the lines of: "A response to my offer is required by 5 pm today. If an answer is not received by that time, that will be taken as a refusal and the offer will be withdrawn." If they are trying to start a bidding war, they may very well refuse to reply, in which case you need to be willing to walk away from this property.