The England international is in the last year of his current deal with the Emirates Stadium club, and has deliberated over whether to extend with Arsene Wenger’s men.
With financial issues thought to be the hold-up, Parlour has stated that Walcott is harming the club and the game.
“Everyone wants to see Theo Walcott sign a new contract,” Parlour told talkSPORT.
“He’s got a lot of work to do on the pitch though and, at the moment, he’s not playing. He’s a good player, but he needs to say whether he’s staying or he’s going and then concentrate on his football.
“All these contract talks can sometimes affect your game. He’s probably thinking more about money and less about his game.
“It’s one of those situations where the player has got to be happy with what he’s got. I can never understand these wrangles over contracts.
“Sure you have a figure in your head which you’re happy with and once that’s been agreed then it’s done. Whether Theo is holding his cards close to his chest and saying, “well, I’ve got one year left on my contract, I want £100,000 a week”, I don’t know,” he concluded.