That the German had been shown the door by AIFF following complaints of "physical abuse" by his players, has been doing the round for weeks.
The coach leaves less than nine months before India hosts the FIFA Under-17 football World Cup.
"We are grateful to Nicolai for his services towards development of the Indian U-17 National Team and wish him all the best for his future endeavours," AIFF secretary Kushal Das said in a statement.
"The process of selecting a new National coach for the U-17 National Team has already been initiated. We shall appoint a replacement very soon and also hope to get the desired results," the AIFF official said.
Nicolai, who had taken charge of the team in April 2015, said: "I am grateful to AIFF for giving me the opportunity to serve as coach of the Indian U-17 National Team. I wish all the bright young talent the very best."
Nicolai's stint in India came to an abrupt halt after reports had claimed that the entire team complained to AIFF president Praful Patel, following which the coach was told to go on his own or be sacked.
After the report came out, the AIFF initially denied it, with Nicolai not budging from his stand to stay on as per the agreement.
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