I Have installed Friechat, is there any way by which I can delete the chat history if I click on the Close link on the chat window.

Thanks in advance

Yes , there is a way . But you will need to do some editing .

There is a function named FreiChat.closeChatBox() which is defined in freichat/client/freichat.js

You need to make an AJAX request to the server here with users' id , and on the server side write a query to delete all messages(rows) matching that particular id
in the frei_chat table