Marko Arnautovic scored the winning goal, despite several clear chances flying Northern Ireland's way. The defeat also marks the fifth away game in a row that the 'Green and White Army' have failed to score in.
Speaking to 'Sky Sports', O'Neill remarked: "We had to defend very deep, it took us a good 20 minutes to get to grips with the game, I thought we did that after a while.
"Ultimately, we had the better chances in the game to go ahead, we didn't take them and then we're punished. It's a poor goal for us to lose... It's a good finish [from Arnautovic], and we hit the post after that as well so we feel a bit aggrieved.
"We've played better but we knew this would be a tough game. We didn't get enough of the second balls, Austria are a physical team and I don't think the referee did us any particular favours with the foul count.
"Maybe you're a little bit biased in the dugout, but I felt - particularly in the first half - we didn't get anything and everything that was given was going Austria's way. Sometimes you get that as the home team but I feel like he disrupted the game somewhat.
"But at the end of the day, we have to compete and in the middle of the pitch, physically, we didn't compete as well as we could have and that is possibly down to the sheer size of the Austrian players as well.
"It is a game we look at and we're disappointed to lose, but we feel a little aggrieved to not take something from it.
"We had young players out there today like Jamal Lewis and Baily [Peacock-Farrell], who are U21s realistically, so we're trying to develop the team and we're bringing new players into the team as well. We won't get too hung up on where we are, we'll get hung up on the level of performance.
"I think it was a good test for a lot of the players who have no played a lot of international football away from home against teams of this calibre. These are the places you have to try and come and get points if you want to qualify for Euro 2020."