The former Arsenal forward says the Chelsea man is not among the world's best.
The Spaniard has been in fine form in the Premier League this season, currently sitting level with Sergio Aguero at the top of the scoring charts.
That game was another one in Europe where the forward has struggled, and Nicholas says this shows that he is not an elite player.
“He’s a top player, but not a really top player,” Nicholas said on Soccer Saturday.
“The best guys who handle the situation are the guys who expose you through talent. If you’re asking him to change, he’s going to lose a percentage of his game.”
The former forward has also criticised Costa for the way he conducts himself on the pitch, saying he behaves like a child most of the time.
The former Atletico Madrid man arrived in England with a reputation for having a fiery temper and a penchant for confrontation, which has been seen throughout the season. He also has a reputation for being a dirty player, with a stamp on Liverpool’s Emre Can adding to that image.
His aggression was once again evident in the game against PSG, and Nicholas says it is that which stops him being a top-drawer player, joining those who want the Spaniard to change his attitude to his fellow professionals.
“He behaves like a child, everything is petulance,” added Nicholas.
"All we’re asking him to do is curb it a bit, not his playing style but his aggression towards people on the pitch.”