Milner has been a target for Roberto Mancini all summer and Villa rejected a £20 million bid from City in May, but Villa manager O'Neill said the midfielder could sign for City as soon as the weekend as the clubs near an agreement on a valuation. Reports indicate City midfielder Stephen Ireland could head in the other direction as part of the deal.
Speaking after his side's goalless draw with Valencia, O'Neill appeared resigned to losing the England midfielder, saying he would prefer the deal to be resolved quickly to allow him time to reinvest the funds.
"We didn't play him against Valencia because there could be something happening in terms of the transfer over the weekend or Monday or Tuesday," O'Neill said. "Until that possibly develops I thought it best to leave him out of the Valencia game.
"To my knowledge no fee has been agreed but talks are taking place involving our chief executive and the chairman. I think for everyone's benefit it is probably time to try and get something done. Losing your best players at the club obviously causes you a headache and it is a problem. It happened two years ago with Gareth Barry when it was not resolved. I'm sure that no-one wants to go down that route again. If and when the transfer takes place I will have to speak to the chairman about future transfer dealings.''
O'Neill confirmed left-back Nicky Shorey was on the verge of a move to West Brom.
"Nicky has gone over there for a medical,'' said the Villa boss. "I would have liked to have filled you in to let you know if that had progressed at this minute but I do know he was going for a medical today. I know some fee had been agreed but like anything else until it's all done and dusted these days you never know. It seemed that everything was in place at the time.''