It was a severe dent to the Gunners' title hopes, particularly with Chelsea overcoming Birmingham 3-0 at Stamford Bridge.
Wenger said: "I believe we dropped two points because we had clear chances, but it was a very difficult game.
"They stopped us from playing when we had the ball and when they had the ball. They played a very long ball game, closed us down and it was very difficult for us.
"We know when you come here what you get and we were not disappointed.
"Villa play a very efficient English game with long balls and (they are) very physical.
"They did it very well and are a good side when counter-attacking."
O'Neill was clearly upset when told of Wenger's remarks and said: "If that is what he saw tonight, well that is a ridiculous statement.
"He has made a few ridiculous statements in his time here (in England) and that is as good as any. That is an appalling insult.
"I thought we played splendidly in the game. Their 'keeper made a great save from Gabby (Agbonlahor) early on and Ashley Young produced some incredible balls into the box that just needed a touch on them.
"Arsenal caused us problems and we had a bit of luck when they hit the post and crossbar but we did not deserve to lose in this game."
To add to Wenger's misery, he revealed that defender Thomas Vermaelen may have a broken leg after being substituted in the first half.
The Frenchman added: "He is on crutches. It is his fibula. Whether it is just a nerve problem or the bone is broken is what we have to check on."
In addition, striker Eduardo suffered a hamstring strain and Wenger admitted the Croatia striker "will be out" of the weekend meeting with Manchester United.