O’Neill, 22, spent the majority of the 2013-2014 campaign on loan at York City where he gained valuable experience, picking up 16 appearances and a solitary goal against eventual League Two champions Chesterfield.
He was recalled by the Clarets’ to be a part of the first-team squad for the FA Cup trip to Southampton in January before heading to Southend on a 30-day emergency loan.
His time with the Shrimpers was curtailed by a thigh injury but having returned to Turf Moor and signed a new deal, O’Neill is looking forward to the season ahead.
O’Neill said: “I’m delighted to have signed a new deal and that the gaffer has given me the chance to be here for another two years.
“I’m looking to get fit now after the injury I sustained whilst I was at Southend last season.
“Sean saw fit to send me out on loan to get some more games under my belt and now I’m back here looking to play and compete.
“I know that will be hard now that we’re in the Premier League but if not, then I will be looking to go out on loan again if that is something the gaffer wants me to do.
“I’m happy to be back here with a great group of lads and I’m thoroughly looking forward to pre-season.”