Routledge only signed an 18-month deal - the length remaining on his contract at Tottenham - when he made the £1.25 million switch to Villa Park last week.
O'Neill said: "Wayne had got 18 months to run of his deal at Tottenham and, while I think he is very capable, at the same time I just didn't really want to imprison him here.
"He feels himself that 18 months is sufficient for him. We have come to a mutual agreement amongst ourselves and it is up to him. All he is looking for is a proper chance and I genuinely hope he gets it.
"If people keep him out of the team for months and he is starved of football, it might mean we are doing pretty well and that is the way I hope it would be.
"But effectively there is an opportunity here for Wayne and, if he is doing well, I will be the first one in the summer to look at the situation again and say 'I'd love you here for the next three years'.
"It is a challenge but Wayne is really up for it. He has been pretty adamant about it and that is what I was looking for."