"When I wish to play at certain levels, my body won't respond to it," he told a news conference in Sapporo, home to his J.League club Consadole Sapporo, citing injuries to his both knees. "With recurring pain, I cannot stand on the stage to fight."
He is the J.League's all-time leading scorer with 157 goals, which were affectionately dubbed 'Gon-Goals' after his nickname, 'Gon'.
The J.League 2012 ended last Saturday when Consadole were relegated after finishing at the bottom of the 18-team division.
Nakayama started in all three of Japan's group matches in their first appearance in the world finals in 1998. The Samurai Blue failed to record a victory in France, but the forward netted their solitary goal, in a 2-1 loss to Jamaica. Nakayama broke his leg in a clash with a Jamaican player soon after his 74th-minute strike, but continued playing until full-time.
Nakayama, who also played at Korea/Japan 2002, scored 21 goals in 53 international matches between 1990 and 2003.
He holds the world record for the fastest hat-trick at international level. In 2000, he scored three goals in three minutes and three seconds in an AFC Asian Cup qualifier against Brunei.
He also pulled four hat-tricks in four successive J.League games in 1998, another feat recognised by the Guinness Book of World Records.