The matter was resolved yesterday during an FA Premier League Managers' arbitration tribunal in London which had lasted four days.
A League Managers' Association mediation panel failed to resolve the dispute between O'Neill and Villa at the tail-end of 2010. The arbitration tribunal has been considering the circumstances that led to O'Neill parting company with Villa five days before the start of the 2010-2011 campaign.
The LMA issued a statement which read: "The LMA is able to confirm that Martin O'Neill and Aston Villa have finalised all issues in relation to his departure from the club in August 2010. The matter was placed before the FA Premier League Managers' Arbitration Tribunal, but was resolved during the course of the hearing."
O'Neill is now looking to get back into management after his nine months out of the game.
He said: "It has taken a long time to deal with this matter but I am pleased that all issues have now been amicably finalised. I am very proud to have managed Aston Villa and I wish the club all the best for the future.
"I would also like to thank the LMA and my outstanding legal team for their support and hard work in bringing my case to this very satisfactory conclusion. I am now looking forward to the future and getting back into football management."
O'Neill enjoyed a successful four-year association with the midlands club after taking over from David O'Leary in August 2006.
He led them to three successive top-six finishes in the Premier League and the 2010 Carling Cup final.
Villa issued the following statement: "Aston Villa and Martin O'Neill have resolved the matter that had been before the Premier League managers' arbitration tribunal. It was an amicable resolution."
Meanwhile, Sir Alex Ferguson has admitted he is glad not to be coming into football as a young manager in the current climate.
The Manchester United boss said the precarious nature of the job plus dealing with celebrity players and trigger-happy chairmen made it a different occupation to when he started.
Ferguson, 69, who was named as the League Managers' Association (LMA) manager of the season on Monday night, said: "Handling the media is difficult, then you have to deal with the players' profiles and agents, and there are different types of chairmen to when I started. I think it's often a knee-jerk reaction to sack managers - their performances are assessed very, very quickly. Some young managers suffer because of that, and that's something the LMA are trying to improve.
"There have been a lot of unusual sackings lately which I've found hard to understand. Roberto di Matteo was probably one of the most surprising because West Brom were playing arguably some of the most attractive football in the premier league and scoring goals. The threat of them going down was probably why Roberto lost his job but I would rather watch a team playing the right way, whether they went down or not."After receiving his award, Ferguson offered his support to sacked Chelsea boss Carlo Ancelotti, and then sympathised with the managers who suffered relegation. "To the managers who had the terrible disappointment of going down - sometimes as a manager you don't get the rewards you deserve," added Ferguson. "Blackpool played a fantastic game and gave something to the Premier League, we will always remember how they played with abandon, enjoying it and always playing attacking football. I've already thanked Ian Holloway for his contribution to the game this year.
"Fortunately I have no worries about (Birmingham manager] Alex McLeish - I have known him since he was a kid and he will be back alright."