When i was 4-6 years old I had this too. But I had no idea about sexual feelings. My parents knew about my fetish. The let me had some time with their feet. I mean they let me play with them. Then after years my fetish has gone away. Some times may be they got some advices from mental doctor about this. But after long time i have it again. Now I am 23 years old and I know that feeling is kind of sexual feeling. But I am not noticed it when I was very young. Because at that time I was a kid. I am thinking my parents decision helps me to stop my fetish. If they don't let me do so I could be find some other one for this from outside of family. That is dangerous. My opinion is let him do that and reduce the chances giving by you in time to time. He will be normal in few years. Don't let him to find out a way to satisfy from outside.
First, you shouldn't let anyone touch you in ways that you aren't comfortable with. Saying no and setting a boundary is a good lesson for your nephew to learn. Don't make it a bad thing, or a punishment, just simply say, "You know, some people don't like certain parts of their bodies touched. I don't like my feet touched, so how about you just sit up here next to me and we can cuddle for a bit?" It's a good way to teach him about consent and touch without a big lecture.
That said, he's really too young to be sexualizing anything. He may like the way that the skin feels, or he might like his feet tickled or rubbed, so in turn, he's doing that for you because he loves you.
Don't keep your distance, though. This little guy loves you, and what he's doing isn't wrong - it's just not your preference. He's 5. He's learning about all the different ways to express affection. Since he lives with you, you're going to be a part of that. You can hold on to your preferences - and you should - and still show affection to him in different ways.