O'Connell has been a revelation in defence for Chris Wilder since joining from Brentford in July 2016.
The hotly-rated 23-year-old has featured in all 16 of Blades' Championship fixtures this season, helping the club join the early pace-setters in the Championship.
The former Blackburn Rovers trainee starred in Blades' title-winning campaign in League One last season, scoring six times in 50 appearances.
He has agreed a stay to remain at Bramall Lane until 2022.
More to follow.