I have two nationalities, A and B, and I am in the national team of country A representing the country at the top international level. In country B I'm also playing in regional and national level competitions as well.
If the world championship is in country B, is it not possible for me to represent country A in that year to do the world championship because under master nationality rule, when I'm a citizen of country B, all other nationalities are not recognised in country B?
The master nationality rule does not apply to sporting events. It applies to diplomatic protection.
Some countries take a dim view of multiple nationality. Many of these have laws that provide for the loss of the country's own nationality when someone obtains or even makes use of another nationality. I am not aware of any country that criminalizes the possession of another nationality, but it is certainly possible. But these considerations would arise as soon as country B learned that the athlete was representing country A on its national team, regardless of whether the athlete were competing against country B or in country B.
There are certainly many publicly known examples of Association Football players with multiple nationalities who play for the international team of one country. It should not be difficult to find examples of such a person competing both in and against another country whose nationality he or she holds. This should serve as a counterexample to disprove the question in the general case. Another place to look for counterexamples would be the Olympics.
A quick look at Wikipedia shows that Lionel Messi has both Spanish and Argentine nationality from birth. He scored a goal for Argentina against Spain, in Spain, on November 14, 2009.
Still, it's always possible that a given country would take steps against such an athlete. Whether that happens might depend on which other country is involved, if the two countries have tense relations.
Assuming first that your two countries both have no problems with you having two citizenships.
Where you live, you can most likely join your local football club for example without any problems; in most countries they don't care about your nationality.
However, when you want to join a national team, it will depend on the governing international body that organises the sport internationally. For example, if you wanted to join a national football team, it's not just the team that needs to agree, it would be FIFA as well.
You don't have to live in the country, many footballers live and work outside their home country. However, there is generally the rule that you can only ever represent ONE country in one sport. So it may be impossible to play for country A, and later in your life for country B.
