The former Portsmouth and West Ham midfielder will support newly-appointed boss Barry Lewtas, who was promoted from his previous role with the U18s in May.
O’Neil called time on his playing career last summer following a one-season stint with Bolton Wanderers.
He had played over 500 games at Premier League and Championship level across spells with nine different clubs.
The 37-year-old has since worked as a pundit for both Sky Sports and talkSPORT, but is now ready to take his first step into coaching.
An opportunity to do that has come up with Liverpool in part thanks to his relationship with the club’s sporting director Michael Edwards.
The pair previously worked together at Portsmouth, where Edwards started out as an analyst before eventually being promoted to head of analysis.