Responding to a newspaper report that claimed Nichols, who still has six months to run on his contract with J.League second division club Cerezo Osaka, was shown the door by Glory on Thursday, Buddy Farah told The World Game that it was Nichols who had requested his deal be terminated.
"There was a request from Mitch to go back (to Japan) and Glory was happy with that and it may also have helped them in their current salary cap situation," said Farah, referring to Perth's on-going response to the alleged widespread breaches which could see it stripped of competition points by Football Federation Australia (FFA) in the coming days as the club responds to a second show-cause notice.
"It was down to a combination of reasons but you can be certain there were no disciplinary issues at all. To suggest that is simply wrong.
"In the end, it was best for both parties and Mitch has left the club and is likely to fly back to Japan at some stage next week to try and win his spot back."
Though Nichols has an option for another year on his Cerezo deal, it appears unlikely he will remain at the club he joined from Melbourne Victory during last year's January transfer window.
He will now head home to the Gold Coast for a short time before returning to Japan.
"Potentially he could move to another club within Japan or back to the A-League where there has been interest from Adelaide United, Melbourne City and Western Sydney Wanderers," Farah said.
"He has a contract that he has honour in Japan. He must go back there and try and break into the team.
"If the club decides not to honour the contract, and he is then paid out, we would design a plan that suits him moving forward, and that would involve considering all our Australian options and where would suit him best.
"But you can be sure that the next stop off for Mitch is an important one. He won't just come back to Australia for the sake of it. It's important who the coach is and the philosophy behind that coach and the club."
Nichols, who made 14 appearances for Glory and last played in the 3-2 win over Western Sydney Wanderers in Round 23, spurned a loan deal in Japan to return to Australia last June in a bid to break into Australia's 2015 AFC Asian Cup squad.
Next up for Kenny Lowe's side, which is second in the A-League, is a Round 25 appointment with fifth-placed Sydney FC on Friday night at nib Stadium.