Davies returned to action after five months out following shoulder surgery as a substitute during Saturday's FA Cup win over Brighton.
But O'Neill is not keen on allowing Davies to make a temporary switch to Parkhead.
He said: "I wouldn't be in a position to be wanting to loan players out at this stage.
"The reason being, of course, is that if you do it internationally between two countries - and Celtic and ourselves would be that - you'd have to do it for the whole of the season.
"While it would be great for some of the younger players to get maybe a month's football, we may well need Curtis. Things can happen here.
"A loan would be absolutely out of the question, especially for a season loan.
"I'm looking at trying to get some of the younger players games but I'm mindful of the fact that after 28 days we can get them recalled."
Villa have just three experienced centre-backs - Richard Dunne, Carlos Cuellar and James Collins - in addition to Davies as they push for a Champions League spot and Carling Cup and FA Cup glory.
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