The former Arsenal forward believes the youngster's BBC interview was ill advised.
The youngster is currently embroiled in a contract standoff with the club, having so far failed to sign a new deal despite months of negotiations.
He recently told the BBC that he had turned down a new 100k-a-week deal at the club, insisting that it is not about money but his ambitions. That revelation has led to increased speculation about his future at Anfield, with him being linked to a number of top European sides - per the Daily Star.
As far as Nicholas is concerned, though, the player has shown disrespect to Liverpool fans with his actions.
“I thought it [the interview] was disrespectful to Liverpool fans,” said Nicholas.
“He was being suggestive that [Arsenal] was one of the clubs he was looking to pick. I think he was digging a hole with the Liverpool fans.”
Despite that, the former forward believes that the player in entirely within his rights to withhold contract talks, and he is not the first to do so.
Liverpool, of course, were in a similar situation with Luis Suarez before last season, with the Uruguayan eventually signing a new deal before joining Barcelona last summer, and Nicholas believes that experience means they will deal with Sterling in the right way.
“Players have the right to delay contracts, many people have done it in the past. That’s entirely his decision,” added Nicholas.
“They’re trying to squeeze the club into a hole. Liverpool, however, have been in this situation before and they’ll handle it in the right way.”