The Northern Ireland international, 23, is tied to the Iron until the end of the season, but with rumoured interest from other clubs had been offered an extension.
According to his agent, Freddie Akehurst, this offer was not enough to get the player to commit to the club. Akehurst claimed the player was being asked to take a pay cut.
"I would like to think we can sort something out but I just think we are so far apart in our thought process that I fear the worst – the worst for the club because I don't want to be in a position, and Michael doesn't want to be in a position, where we let the club down by not signing," he told the Scunthorpe Telegraph.
Posting on the social networking website Twitter, O'Connor said he was "trying to work something out, but the deal ain't very good".