Excessive appreciation is indeed hard to appreciate. When any form of recognition is provided constantly, it loses its meaning and can easily become a source of annoyance.
You made the right move by telling this employee that he does not need to thank you any more, but it does not sound like he truly appreciated what you are saying. When you say, "you don't need to thank me any more," it is possible for this employee to complete your thought with, "but you can if you want."
If you want him to stop doing this, you need to be more direct. This does not mean to be harsh, just businesslike. You should sit down with him and give him some specific feedback on this behavior. Tell him that you appreciate his thanks, but his tendency to provide constant and excessive thanks is simply too much of a good thing and is diluting the message he is trying to send.
If he is listening to what you are saying, he will thank you. Once.
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