The Belgian ace, who only joined the Villa Park side after Euro 2000, has admitted defeat in his fight to regain fitness, after suffering a double fracture to his right leg in a Premiership clash with Ipswich in September.
The 33-year-old former PSV Eindhoven hit-man sustained the injury in an accidental clash with Town goalkeeper Richard Wright.
It was initially rumoured his career had been ended by the incident, and Nilis has confirmed those fears, after accepting medical advice.
Speaking on Wednesday, the forward said: "For the short period I was employed by Aston Villa I enjoyed every minute and am bitterly disappointed I could not continue to score goals.
"But having taken medical advice I will be unable to continue."
Villa chairman Doug Ellis paid tribute to Nilis, saying: "Whilst being covered by insurance, that cannot compensate him for not being able to play for Aston Villa.
"It is also hugely disappointing for Aston Villa, who have lost the services of a world-class striker.
"Luc has been a well-liked member of our playing squad and will always be welcome at Aston Villa."