Nielsen, 37, was poised to enter the final year of a six-year, $31.5-million contract he signed as a free agent in 2016. As a result of the buyout, the Red Wings will save $1 million against the salary cap this season and carry a $500,000 charge against the cap in 2022-23.
The Red Wings were able to buy out Nielsen during a second buy-out window that opened after the team settled contracts with all of their arbitration-eligible restricted free agents.
Nielsen's role with the Red Wings had diminished in recent seasons and hit a new low when he was waived and assigned to the taxi squad last year. As a result, he appeared in only 29 games last season -- mostly in the bottom six -- scoring one goal and six points.
For his career, the Herning, Denmark native has appeared in 925 games with the Islanders and Red Wings, scoring 167 goals and 473 points.