  GRB 080503 is a short gamma-ray burst (GRB) detected by \emph{Swift} and has
been classified as a compact-star-merger-origin GRB. The soft extended emission
and the simultaneous late re-brightening in both the X-ray and optical
afterglow lightcurves raise interesting questions regarding its physical
origin. We show that the broad-band data of GRB 080503 can be well explained
within the framework of the double neutron star merger model, provided that the
merger remnant is a rapidly-rotating massive neutron star with an extremely
high magnetic field (i.e. a millisecond magnetar). We show that the late
optical re-brightening is consistent with the emission from a magnetar-powered
"merger-nova". This adds one more case to the growing sample of merger-novae
associated with short GRBs. The soft extended emission and the late X-ray
excess emission are well connected through a magnetar dipole spin-down
luminosity evolution function, suggesting that direct magnetic dissipation is
the mechanism to produce these X-rays. The X-ray emission initially leaks from
a hole in the merger ejecta pierced by the short GRB jet. The hole subsequently
closes after the magnetar spins down and the magnetic pressure drops below ram
pressure. The X-ray photons are then trapped behind the mergernova ejecta until
the ejecta becomes optically thin at a later time. This explains the
essentially simultaneous re-brightening in both the optical and X-ray
lightcurves. Within this model, future gravitational wave sources could be
associated with a bright X-ray counterpart along with the mergernova, even if
the short GRB jet beams away from Earth.
