The Aston Villa boss added that although their opponents were superior his side had contributed to their own downfall. A Steven Gerrard hat-trick and goals from Dirk Kuyt and Albert Riera compounded Villa's misery as they slipped three points behind Arsenal in the race for fourth spot.
O'Neill will have to make do without first choice goalkeeper Brad Friedel when his side travel to Manchester United next time out after he conceded a penalty and was sent off for bringing down Fernando Torres in the area with the score at 4-0.
"We were well beaten by an exceptional Liverpool side," he told Skysports.com.
"But we did contribute to our own downfall. At 1-0 down, we gave away an unbelievably bad goal. It was a shocking mistake.
"Liverpool have had two remarkable results before this game, beating Real Madrid and Manchester United - and they certainly did not need any help from us to achieve what they wanted."
The former Leicester and Celtic boss confirmed that his side played poorly but was confident that they could get back on track sooner rather than later.
"We played poorly. We gave away some lousy goals and we have to get back on track," he highlighted.
"We were doing fine four or five weeks ago, but we were well beaten by a better side. But we are a better side than we showed in this game."