I agree about constantly stopping it actually. With autism repetitive behaviours and 'phases' they can last years not weeks, so if its something you don't want to encourage its easier to stop it quickly.
Always try and label what you want him to do instead. If you say 'don't put your hands in your nappy' often the child can't process all the language and just hears 'hands in nappy' - the opposite of what you want.
so I would say something like 'nice still hands' to remind him to keep his hands still and out of his nappy. Try and catch him before they go in if possible. Stop it every time - my son finds rules much easier if they are consistent.
Lots of praise and rewards when not putting hands in. Nursery can do this as well commenting on his 'nice hands' or how still his hands are. Lots of times throughout the session.
If language is a massive problem you can have a symbol of hands in a nappy (you probably will have to make your own / use a photo) with a red 'no' line through it and maybe one with a child with hands out of nappy and label that one 'nice hands' or whatever you intend to say.
Also giving something to play with which is incompatible with putting hands in his nappy eg a squidgy ball or light up toy etc (see sensory toy warehouse for lots of cheap things) or an activity which needs 2 hands
Nursery should have a box of toys to reward / distract him too. But don't let them give him the toy after he has done it, only when they catch him not doing it as a reward for having nice hands! Reward the behaviour you want to see.