O'Neill is known to be an admirer of the England striker despite the 29-year-old having been hit by a succession of injuries in recent years.
But the Villa manager, who is currently on holiday, has played down suggestions that the club have already made an offer to the former Liverpool and Real Madrid striker.
Villa issued a statement on their official website which reads: "Martin O'Neill has dismissed stories suggesting Villa have offered Michael Owen a two-year contract.
"O'Neill has hit back after newspaper reports suggested the club were ready to hand the England striker almost £3 million per season – with a further 12-month option dependent on injuries and goals."
Should Owen join a Premier League club following Newcastle's relegation, he will almost certainly have to accept a significant reduction in wages.
Owen is paid in excess of £100,000 a week, but his injury record and advancing years mean he is unlikely to command such a salary in today's market.
Owen finished as Newcastle's leading scorer last season with 10 goals but his absence for lengthy periods was a key factor in them being relegated from the Premier League as they missed his predatory instincts in front of goal.