The 30-year-old had been training with The Lilywhites for the past month after being released by Derby County.
Preston offered the stopper a one-month deal while Portsmouth were also in the hunt following injuries to their rearguard.
However, the First Division table-toppers signed Arsenal's Efstathios Tavlaridis, leaving Preston in pole position.
But Preston manager Craig Brown confirmed O'Neil had rejected his side's offer in favour of a two-and-a-half year deal at unnamed club, believed to be abroad.
"He was looking to get a two-and-a-half year deal and it now looks likely that he will get that elsewhere," Brown told the club's official website.
"We offered him a short-term deal so that we could check out his fitness and have a proper look at him. He has also turned down league leaders Portsmouth, who offered him a deal until the end of the season so I suppose that is no bad reflection on us.
"He is not staying in England and won't be going across the border. Remember he has had a spell in Germany before playing for Wolfsburg and earned himself a good reputation there."
Meanwhile, goalkeeper Andy Lonergan has returned to Deepdale after his loan spell at Division Three side Darlington.
