Mr O'Neill on Wednesday filed a writ of summons in PNG's courts against Mr Namah, alleging he had publicly accused the prime minister of personally benefiting from government contracts.
The prime minister is also suing the news director of EMTV news, John Eggins, and reporter Scott Waide for broadcasting Mr Namah's comments on April 25.
"(Mr Namah) has an opportunity to front up in court and provide evidence for the very serious allegations he has raised, or face the consequences," Mr O'Neill said in a statement on Wednesday night.
"He cannot run away from it. We live in a democratic society and free speech is a fundamental principle of our institution.
"But the laws that guide our democracy and free speech allow us to do so with an exercise of responsibility."
Mr Namah last month told reporters he would present evidence in court and mount a vigorous defence against Mr O'Neill's court challenge.
Mr Namah also said he would pay the legal costs of the journalist, Mr Waide.
He accused the prime minister of waging a war on the media.
Mr Namah was Mr O'Neill's deputy from August 2011 until the national election in June/July 2012.
The pair fell out and Mr Namah is now in charge of a shrinking opposition, whose numbers have dropped from 12 to just seven in recent months.
Mr O'Neill commands an overwhelming majority of more than 95 MPs in PNG's 111-seat single house of parliament.
The writ filed in court says the words spoken by Mr Namah implied Mr O'Neill was dishonest and corrupt and was unfit to hold office of prime minister.
The writ says that based on Mr Namah's statement, the public was likely to shun, ridicule and despise the prime minister.
"As leaders, we must debate public policy in a constructive and informed manner, not attack the personal integrity of others with unfounded and false statements."
Comment is being sought from Mr Namah.
The opposition leader last month told reporters he had sources within EMTV who had told him Mr O'Neill threatened to remove the station's broadcast licence.
However when asked by AAP he declined to name them, saying only they were high up in the organisation.
This claim was strongly denied by Mr O'Neill's spokesman and EMTV.