The goalkeeper has been one of the Mackems' stand-out performers so far this season, and the Northern Irishman is keen to reward his good form with a new contract
The Belgium shot-stopper has kept nine clean sheets in the Premier League so far this season, a statistic which puts him second only to Manchester City keeper Joe Hart.
And, despite Mignolet still having two years left to run on his current contract, the Northern Irishman is keen to resume talks which began in October.
When asked whether contract talks were a priority, O’Neill told the Shields Gazette: “Absolutely – very much so.
“Simon still has two more years left to run on his current contract, but we would like to do something and that is something I want to push forward.
“If anyone deserves a new deal this season it is Simon, without a doubt. He has been fantastic for us.”
Mignolet has found himself behind Atletico Madrid keeper Thibaut Courtois in the fight for the Belgium No.1 jersey, a situation which the player's agent recently suggested could force his client to seek a move to a bigger club.
However, O'Neill explained that the 24-year-old had come to him during the week to clarify his representative's comments and underline his desire to stay.
“He’s a really genuine lad,” added O’Neill. “He asked to see me this week to talk to me about the stories in the media, and at that stage I hadn’t seen them.
"But he felt things were being twisted a little bit and he wanted to let me know that. I can’t prevent other teams being interested in him, if that’s the case.
“But I think that, for him, it is really important that he is playing regularly and things might change. You never know, we might become as good as Atletico Madrid in the next few years!”
And whilst eager to take his chance on the international stage, Mignolet has insisted he is focusing on progressing with the club he is so "proud to represent".
“I am happy at Sunderland - a club I am proud to represent. I will continue focusing on my football, starting with Saturday’s game against Fulham," Mignolet told the clubs official website.
“Of course, my ambition is to regain the number one spot with my national team, but I feel I can do that with Sunderland.
“I was playing as Belgium’s number one a year ago and hopefully that can be the case in the future.