'It was a horrendous challenge on an England colleague and James Milner is exceptionally lucky to have his career intact,' O'Neill said.
'It was a red card. James is very sore and very, very lucky. We think he has got away with it because his leg was in the air but if you see the challenge, his knee bends out. I've just spoken to the doctor and he says he is very, very lucky boy.'
Luck was certainly not with Villa. O'Neill felt that his side were also denied a penalty in the 16th minute when John Obi Mikel brought down Gabriel Agbonlahor in the box.
'The penalty was clear cut,' O'Neill said. 'You could tell by the reaction of the Chelsea players that they knew it was a penalty. The referee has chosen to ignore it because of the possible consequences.
"It was a clear goal-scoring opportunity so it was a clear sending off but we didn't even get the penalty. Referees should apply the law. That's all I'm looking for, a bit of fair play.'
It was a case of history repeated for O'Neill. In the Carling Cup final at Wembley at the end of February Manchester United's Nemanja Vidic was not sent off by referee Phil Dowd after fouling Agbonlahor when clean through on goal.
'Five weeks ago the referee bottled it completely,' he said. 'And I'm sitting here again talking about major incidents that change games, incontestable decisions. I don't know why he didn't make the decisions. It's just maddening.'
On another poor Wembley pitch, Villa were the better side in the first half but Chelsea responded to Ancelotti's angry half-time team-talk, taking the lead when Didier Drogba diverted in Terry's scuffed shot, meaning the Ivory Coast striker has scored in each of his five competitive appearances at Wembley.
Florent Malouda and Frank Lampard added goals in the closing minutes as Villa chased the game.