The IFA are understood to be impressed with the former Shamrock Rovers manager's work since taking the helm.
O'Neill, whose current contract expires later this year, has endured a mixed World Cup qualifying campaign.
He guided his side to a shock win over Russia and an away draw against Portugal, but they failed to beat Group F minnows Azerbaijan or Luxembourg at home and suffered an embarrassing 3-2 away loss to the latter last Tuesday.
A new deal will be offered regardless of the Luxembourg defeat and is believed to be based on improvements O'Neill has made both on and off the pitch.
Away from the senior squad, O'Neill has taken a hands-on approach with young players, overseeing a revamp of the underage groups.
As a player, O'Neill won 31 caps for Northern Ireland, scoring four goals from midfield.
The Portadown native's greatest achievement to date as a manger was leading Shamrock Rovers to the group stages of the 2011 Europa League, the first League of Ireland side to do so.