The o-ring is not too big.
The trick, if there is one, is to put the o-ring in the groove in the engine first, and then slide the neutral switch in. The switch body is tapered and it slides right in easily with no leaks.
If you put the o-ring on the switch first, it is almost impossible to get in and trying to force it in damages the o-ring.
That may be why yours is leaking? Use a new o-ring, or one that you have inspected to be undamaged and clean the groove.