You need to do this in two steps. First, group nearby points together. Then, replace each group by one point.
Let s be a nonempty subset of your points and distance(p,s) the smallest distance between p and some element of s. Now here is some pseudocode for creating groups of "point clusters":
input: pointlist
groups:={} // will contain groups of points, disjoint subsets of "pointlist"
for each p in pointlist
let newgroup:={p}
for each g in groups where `distance(p,g)<DELTA`
newgroup := join(newgroup, g) // join the two sets
remove g from groups
next g
add newgroup to groups
next p
output: groups
Note that this algorithm does not guarantee that each pair of points of a group has a distance <DELTA< DELTA, only that each found group cannot be divided into two smaller groups with distance >= DELTA. You have to decide for yourself if that is sufficient, but as @DieterLücking has pointed out, don't expect to find an algorithm to solve the problem exactly the way you have described it originally.
Once you have your groups of points calculated, you can replace each group by the median value of it's points.
Concerning running time: the running time depends heavily of calculating the distance function fast. So in case the straight forward implementation of subsets by lists or arrays is not fast enough (which you should test first before starting to optimize!), then you might consider to use an improved data structure here. For example, you could keep track of the "bounding box" of all elements of a subset, since if distance(p, boundingbox(s))>=DELTA, then you can be sure that distance(p, s)>=DELTA as well.