Leicester City Council planning officers have recommended that the Foxes' plans for the pounds 25m stadium at Bede Island South be turned down. Government guidelines dictate that retail developments should not be built outside the city centre, but City had included a hotel, casino, restaurant and shops.
"This is dreadful news and a massive blow to all of us who had been assured we would be playing in the brand-new stadium next year," O'Neill said.
"I have persuaded as many of our top players as possible to sign extended contracts because I could point to the new stadium as a sign that the club is going places. I have to say that many of us on the football side were always rather sceptical about the whole thing and now it appears our fears could be justified.
"Now I have to tell those same players that, sorry, it looks as if we will still be playing at Filbert Street in front of crowds of 20,000 on a bad pitch in humble surroundings for a few more seasons yet.
"We thought the main problem might be transport but to find that it was something fundamental in the plan suggests mistakes have been made."
Chelsea are to take the top 10in to 12in off the Stamford Bridge pitch immediately after the game against Blackburn next Wednesday in an attempt to solve the problem of water retention on the field, which has caused the pitch to be "sticky". Chelsea players have complained that the surface is inhibiting their ability to pass.Reuse content