Western Sydney was his fourth club, following stints with Perth Glory, Melbourne Victory and Brisbane Roar, where he won two grand finals.
His contract with the Wanderers officially expires at the end of the month.
Originally from the Gold Coast, Nichols has played five times for the Socceroos, with his most recent cap coming in November 2014 against Japan.
His best hope of finding another contract would be overseas but his only attempt so far - a move to Japanese club Cerezo Ozaka in 2014 - was unsuccessful, playing just 10 times in all competitions.
Comment is being sought from Football Federation Australia and Western Sydney.
Nichols' arrest follows a spate of similar offences among other Australasian athletes.
Sharks chairman Damian Keogh, under-20s player Jesse Savage and Roosters star Shaun Kenny-Dowall were allegedly caught in possession of cocaine earlier in the month.
Then Kiwis pair Jesse Bromwich and Kevin Proctor were arrested over allegations they had used cocaine outside a Canberra nightclub following the Anzac Test.
-AAP