O'Neill's relationship with Villa owner Randy Lerner has gradually deteriorated over the last eight months, with the Northern Irishman feeling he did not receive the financial backing he needed during the January transfer window when the team were pushing strongly for a Champions League spot.

The only movement in that month saw Craig Gardner leave Villa to join local rivals Birmingham.

But matters came to a head this weekend after O'Neill failed to obtain assurances from the American he would receive all the money from the expected transfer of James Milner to rebuild his squad.

That was the final straw for O'Neill, who yesterday informed Villa's chief executive Paul Faulkner of his decision to quit after four years in charge.

O'Neill said: "I have enjoyed my time at Aston Villa immensely. It's obviously a wrench to be leaving such a magnificent club.

"I would like to pay tribute to the Villa players, my coaching staff and the Villa supporters for all the support and encouragement they have given both the club and me personally during my time as manager.

"I wish them all the best for the future. I will obviously be assisting the club in the immediate short-term with regard to the handover of my duties."

Milner looks set to complete a £20million-plus move to Manchester City later this week after returning from England duty.

It will be the second high-profile player to leave the club following skipper Gareth Barry's departure - also to City - last summer.

That blow was cushioned by O'Neill being able to spend £40million on seven players.

But Lerner made it clear at his end-of-season briefing in May that he would prefer a "sell-to-buy" policy to be introduced.

He insisted at that juncture O'Neill was happy to remain at Villa and claimed any money generated from the sale of players would be pumped back into new signings.

But in O'Neill's eyes the goalposts had been moved when he attempted to establish all the money from the Milner deal would be available to splash out on squad strengthening.

The former Celtic boss was not prepared to tread water after insisting at the end of last season Villa "needed to improve just to stand still" after the rise of City and Tottenham.

There have also been concerns over the future of star winger Ashley Young, who has been linked with a move to White Hart Lane.

Faulkner said: "The club would like to thank Martin for the great work he has done at Aston Villa over the past four years.

"He has helped to establish the club in the upper echelons of the Premier League, has taken us to Wembley and we have also qualified for European competition for the past three seasons under his management.

"We wish him the best in the future."

Reserve coach Kevin MacDonald will take charge of the team for Saturday's opening Barclays Premier League clash with West Ham at Villa Park.