The constitutional amendment to extend this grace period from 18 months to 30 months passed its second reading, with 90 supporting votes and 14 against.
O'Neill called it a history-making change and said it provided the benefit of political stability to major resource sector investors.
"It strengthens political stability, it allows officials at all levels of government - national, provincial, district and local - to be confident that the record spending programs outlined in the 2013 budget have the strong and continuing political backing they need," the PM said.
"This change is not about increasing my power. It is about locking in to place the long term political stability our nation, and especially our people, have been denied for too long."
O'Neill stressed that safeguards remained.
"The power of the Prime Minister is always subject to the checks and balances of our robust parliamentary democracy, our independent judiciary, and above all our national constitution."
Prominent PNG political blogger Deni ToKunai said the amendment was as good as law now. He indicated that this change effectively created just an 18-month window for a vote of no confidence.
"It appears everybody has forgotten that it's not just a 2.5 year grace period," he tweeted.
"It's 3.5 years. A VONC can't be moved in the final year either."
Opposition Leader Belden Namah has launched a legal challenge against the constitutional amendment. If this fails, a VONC will not be possible until 2015.