Here's What u need

function timer() {
    let seconds = "0";
    let minutes = "0";
    let hours = "0";
    let fulltime = `${hours}:${minutes}:${seconds}`;

    const incrementSeconds = () => {
      let secondsAsNumber = parseInt(seconds) + 1;
      seconds = secondsAsNumber.toString();

      if (seconds > 59) {
        minutes = parseInt(minutes) + 1;
        seconds = 0;
      }
      if (minutes > 59) {
        hours = parseInt(hours) + 1;
        minutes = 0;
      }
      // Update fulltime variable

      fulltime = `${hours < 10 ? "0" + hours : hours}:${
        minutes < 10 ? "0" + minutes : minutes
      }:${seconds < 10 ? "0" + seconds : seconds}`;
    };

    const displayTime = () => {
      console.log(fulltime);
    };

    setInterval(() => {
      incrementSeconds();
      displayTime();
    }, 1000);
  }

  timer();

Update your fulltime variable after incrementing seconds:

function timer(){
    let seconds = "00";
    let minutes = "00";
    let hours = "00";
    let fulltime = `${hours}:${minutes}:${seconds}`;

    const incrementSeconds = () => {
        secondsAsNumber = parseInt(seconds) + 1;
        seconds = secondsAsNumber.toString();
        // Update fulltime variable
        fulltime = `${hours}:${minutes}:${seconds < 10 ? "0" + seconds : seconds}`;
    }
    
    const displayTime = () => {
        console.log(fulltime);
    }
    
    setInterval(() => {
        incrementSeconds();
        displayTime();
    }, 1000);
}

timer();

Then it should output:

00:00:01
00:00:02
00:00:03
00:00:04
00:00:05

... and so on ...