O’Neill was impressed by the role Milner played in their 3-0 victory over Hull City at Villa Park on Saturday.
“Milner was brilliant. That is the second game in a row he has played in central midfield for us and he performed as if he has been there all his career,” said O’Neill.
“I always felt he was capable of doing that. It is a different game when you move inside. I know that from my own experience at Nottingham Forest. You see a different game.
“But he performed brilliantly. The great thing about James is that versatility.
“Apart from being on the wings, he has played right-back on a couple of occasions and can do that as well.
“He is really thriving here and has taken his game on a notch or two.
“Eventually Fabio Capello must have one or two players in that group of candidates who can play in two or three positions.
“I said to James at the start of the season he could play in the middle and he is proving me right.”
“The first-half performance was really good,” he added. “Our first goal should have been our third goal given the opportunities we had.
“There was a lot of fluidity about the team. The second half was more stop-start but overall I was delighted with our win.”
