The midfielder, who only took over from Max Kilman as captain in the summer, has struggled for form as Wolves battle in the relegation zone.
Lemina was involved in a scuffle with Jarrod Bowen at the end of the loss to West Ham on Monday, before pushing team-mate Toti Gomes and then going head-to-head with first team coach Shaun Derry.
O'Neil admitted those scenes played a part in his decision to strip Lemina of the captaincy.
"We’ve spoken a lot this week, me, Mario and some of the other senior players and what happened after the game can’t happen," O'Neil said.
"We understand emotions can rise and we’re in a tough moment and everyone is under big stress and pressure but they are scenes we won’t see again.
"The discussions with Mario have been good, we get on very well, he has been a big part of what we’ve been able to do here and we have a large amount of respect for each other.
"After the discussions, we decided to move the captaincy to Nelson and Nelson will captain the group from now on.
"The discussions were good. Sometimes these things can be tough to deal with, sometimes you can come out in a really good spot. I feel we have.
"I have a lot of respect for Mario and what he is still going to be able to do for us, and what he's done for us before.
"When we get the best out of him his level is so high he and he will still play a very big part for us, which he is still extremely keen to do.
"He will still be around that group of senior players who lead the team but at this moment we feel it’s best for Nelson to lead the group."
When asked how Lemina is following this decision, O'Neil added: "Mario is fine, it was a conversation. It was nothing more than that.
"The most important thing to come out of it is we need to get the best out of everyone.
"Of course, the other night sparked the conversation but it was an important conversation that had to be had and we have a good understanding now of how we move forward.
"We dealt with it earlier in the week. The focus since that moment has been on Ipswich. Mario is ready and Nelson is ready."