Former England Under-21 captain Reo-Coker's days at Villa looked numbered in the summer.
He had a training ground fall-out with O'Neill early last season and made only spasmodic appearances for the Midlands club.
But one of Houllier's first actions after taking charge last month was to restore Reo-Coker to the side and he has responded with some encouraging performances.
Houllier said: "Right away, I knew that I needed Nigel and I think he has done well for us.
"We needed someone who has got the grit to win the ball back for us.
"Nigel has got a specific job for the team and he is doing it well.
"Don't forget, he had hardly played since the beginning of the season before he came into the side."
Houllier has already stressed that it is too early to comment on any possible new contract for Reo-Coker, whose current deal expires in the summer.
But Villa midfielder Marc Albrighton admitted: "We definitely want to keep players like Nigel.
"He does the dirty work in the middle and then gives it to players who will create the chances for us.
"I think he had a bad couple of seasons when he wasn't enjoying his football but the gaffer now has given him a new lease of life."