Barry, who left Villa and joined Manchester City in the summer, has impressed at Eastlands.
Villa face City at Villa Park on Monday.
“He’s been a good player here. A very good player. He was here for a long, long time,” O’Neill told Sky Sports News.
“He would have to come back sometime, obviously.
“But instead of playing for us he’s playing against us and that in itself will make life difficult for us.
“We’ll try and deal with it accordingly. He’s playing in a team at the minute that are absolutely flying.
“It’s going to be a really tough game for us, but it’s obviously one we are looking forward to.”
O’Neill added, when asked if he regrets selling Barry to City: “He’s given a lot of service to the football club, which is important.
“But he chose to leave in the end. I accepted his decision, that was what he wanted to do.
“The immediate thing is to try and replace him, which isn’t easy.
“We’re hoping eventually that Stewart Downing and young (Fabian) Delph will work towards replacing him.”