O'Neill has previously criticised BHP for running the Ok Tedi mine-affiliated PNG Sustainable Development Program by "remote control" from Melbourne through BHP-nominated board positions.
The PM also successfully pressured Ross Garnaut into quitting his chairmanships of PNGSDP and Ok Tedi Mining Limited, which included the tactic of banning Garnaut from re-entering PNG from November.
While Garnaut was unimpressed with this use of the government's immigration powers, a leaked Department of Foreign Affairs and Trade department document carried more weight than Garnaut's recent OMTL resignation letter.
According to the Australian Financial Review, this document revealed BHP's view that O'Neill was tried to gain control of PNGSDP for years.
The miner reportedly claimed that O'Neill only wished to grant exploration licences to BHP if it transferred control of a $A1.4 billion PNGSDP development fund to the government.
This news coincides with an industry rumour that coincided with the news BHP had pulled the plug on its PNG exploration plans in April last year because it did not want to hand over control of PNGSDP's Singapore-based trust funds.
"He [O'Neill] subsequently blocked our lease applications and made it clear they would only be granted if we transferred our rights [PNGSDP] to the government," BHP reportedly said in the leaked DFAT document.
But O'Neill has labelled such claims as false and misleading.
"The article claims that I had blocked the granting or extension of exploration licenses because it would not agree with my proposals regarding the determination of the board of PNG Sustainable Development Program," O'Neill said in a statement.
"This is totally and utterly false. It is just dishonest.
"BHP Billiton surrendered the licenses entirely on its own accord. It did so when it made a decision early last year not to invest in Papua New Guinea - after I had personally invited the company to meet with senior cabinet ministers, including myself and to consider investing in PNG.
"We did everything possible to encourage the company, just as we encourage and assist other major investors all the time. They decided not to take up the offer. That occurred before the mid-year elections, and eight or nine months before I made my comments on Professor Ross Garnaut."
The PM also outlined his case against BHP for exercising effective control over PNGSDP and the Ok Tedi mine in PNG.
Setup by BHP after it exited PNG in 2002 on the back of the environmental damage caused by its operation of Ok Tedi, PNGSDP has an estimated $US1.4 billion of assets which includes a 63.4% stake of Ok Tedi with the rest split between the national and Western provincial governments.
"The PNG government of the day decided just over a decade ago to legislate to allow BHP Billiton to walk away from any responsibility for the damage that was caused during its management of the mine," O'Neill said.
"That spared the company the massive costs, and international humiliation, it faced because it effectively ended compensation claims by landowners and local communities along the Fly River.
"The provisions that allowed the company to effectively control the appointment of the Board of the PNGSDP, and therefore continue its influence over Ok Tedi, were generous. There can be no justification for their continuation."
In regards to BHP's reported claims to the DFAT, O'Neill warned that the Australian government was aware of his position.
"The legislation that effectively let BHP Billiton off the hook is PNG law, not Australian law."
O'Neill has also previously criticised the effectiveness of PNGSDP's social and community projects to date.
As for claims from Garnaut and from the leaked document over damage to PNG's investment climate, O'Neill dismissed them as total nonsense.
"Last month I addressed 1,400 mining, oil and gas leaders, and financiers and analysts, in Sydney, at the annual PNG Mining and Petroleum Conference.
"At that conference, there was strong confidence expressed about PNG as a country in which to invest, and in the range of policies my government has in place, and is committed to, to give investors confidence and certainty.
"The claim that this issue has undermined confidence could not be further from the truth."