O'Neill has been Villa boss since 2006, and has just guided the Midlands giants to a sixth placed finish in the Premier League, as well as an appearance in the Carling Cup final and FA Cup semi-finals.
There had been fears O'Neill would leave following disagreements with the American owner, but fans will be relieved to hear he will be staying on.
Staying on: Martin O'Neill
Lerner said: 'Martin will be back next year managing. It has already been settled. He and I spoke on a number of occasions in person and over the phone.
'Yesterday I dragged him out of a series of meetings with chief executive Paul Faulkner trying to get plans for the summer underway.
'We feel very good about that because it represents continuity for the players and in many other ways.
'I think next year will be exciting and worthwhile and I look forward to it.'
He added: 'I gave Martin assurances that I also wanted to take the team forward.
'That's been settled. We feel very good about that as it represents continuity for the players and in many other ways.
'Let me say again, Martin O'Neill will be the manager next season. He has definitely agreed and I wasn't worried that might change.
'In fact, I would say our working relationship is as close as ever - if not closer.'
Lerner admits a general 'sell to buy' policy will remain in place and the likesof Curtis Davies, Luke Young, Nigel Reo-Coker, Steve Sidwell, Nicky Shorey andHabib Beye will be available to leave if the price is right.
But that will not stop the owner of NFL side the Cleveland Browns making funds available to O'Neill over and above that policy.
The joy of six: Villa finished strongly despite a final day defeat against Blackburn
Lerner said: 'I gave Martin the assurance that I also wanted to takethe team forward. A £30 million striker would be out of our budget butthere is money there to be spent on the team.
'I say that carefully in the context of knowing that the summerbrings a very dynamic environment of players coming and going so I'mcareful not to simply say 'here is a brand new amount of money, go andspend it.
'I would prefer to say our ambitions remain to get better and we arenot in some sort of mode where we are shutting the door on spending onplayers.
'Is there a sell to buy policy? I think there is a sell to buy policy in every organisation on the planet.
'On the other hand if an opportunity arises and the net 'sell tobuy' doesn't equal what is required to take advantage of anopportunity, then you may spend the money. I wouldn't exclude us from the group who would do that.'
Keeping the boss: Villa owner Lerner
O'Neill himself had previously rejected recent unsubstantiatedinternet rumours that he was unhappy with Lerner's transfer policy.
He insisted there was no fall-out with Lerner and that he would assess everything with the American at the end of the campaign.
He has signalled his intention to oversee a major overhaul of the current squad, informing six fringe players that theclub will listen to offers for them.
Curtis Davies, Luke Young, NigelReo-Coker, Steve Sidwell, Nicky Shorey and Habib Beye were told theycould leave provided any interested club come up with a suitable offer for the players.
O'Neill was delightedwith his side's overall campaign, and will now be hoping that he can push on next season after summer strengthening.
The northern Irishman admitted last week that he would need to improve the team just to stand still in a fiercely competitive top flight.
He said: 'In terms of expectation, it is getting higher and higher. Ifyou achieve a bit of success, you feel you have to move forward at agreat pace.'
O'Neill has established himself as one of the game's top managers after an illustrious career.
He previously enjoyed success at Wycombe Wanderers, Leicester City and Celtic.
O'Neill took Wycombe into the Football League, and then won two League Cups during his time at Leicester.
While in Scotland, he generally took the upper hand over Old Firm rivals Rangers, winning three league titles and three Scottish Cups during his time at Parkhead.
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