The England midfield ace has impressed with a number of eye-catching displays this season, leading to talk of a £24m move to the mega-rich Eastlands club.
“It is irksome at this stage of the season,” fumed O’Neill, who plans to open contract talks with Milner this summer.
“It doesn’t do anyone any favours particularly because the player has had a fantastic time and is enjoying his football immensely here.
“James is still under contract with us and it's a case of dampening fires that weren’t there in the first place.
“We want the best players here at Villa so we can keep the momentum going. If it is not James it will be Ashley Young and if it is not Ashley it might be Richard Dunne and then someone else the following week.”
O’Neill insists he knows nothing of any contact from City regarding Milner, adding: “It has got ridiculous now and I can categorically say that I have not heard anything from Manchester City.
“You almost get the impression that stories are put in there to kind of upset you at this stage of the season.”