O'Connell, 23 was signed by Chris Wilder in July 2016 from Brentford and played a huge part in the Blades success story in winning automatic promotion to the Championship, and has been ever present in the league games so far this season.
The defender has signed an extension, keeping him at Bramall Lane until 2022.
He said: “Once the Gaffer spoke about me signing a new deal, I agreed straight away, it was a no-brainer. I only see myself improving here and continuing to progress my career. This is a big club; we have an excellent group of players who are all winners and a terrific staff who know how to get the best of us.”