O'Neill is known to be an admirer of the former England striker despite his injury problems in recent years and it was rumoured that he had put a £50,000-per-week package together for the 29-year-old.
But the Villa boss has played down suggestions that the club have already made an offer to the former Liverpool and Real Madrid star.
"Martin O'Neill has dismissed stories suggesting Villa have offered Michael Owen a two-year contract," a statement from the club read. "O'Neill has hit back after newspaper reports suggested the club were ready to hand the England striker almost £3m-per-season - with a further 12 month option dependent on injuries and goals."
Owen is set to reduce his wage demands after commanding a six figure salary at St James' Park but Villa's proposed package would still have made him the highest paid player at the club.
Owen finished as Newcastle's leading scorer last season with 10 goals but his absence for lengthy periods was a key factor in them being relegated from the Premier League as they missed his predatory instincts in front of goal.
Everton could also be willing to offer Owen a route back into the Premier League as manager David Moyes is in the market for a new striker.