The 36 year-old goalkeeper was lined up to act as back-up to current Posh number one Christy Pym at the end of last month.
Posh needed to find someone fast as reserve ‘keeper Dan Gyollai and Academy graduate Will Blackmore both had to self isolate after coming into contact with coronavirus sufferers.
But the EFL refused to sanction the deal, and not for the reasons previously reported.
Steele explained: “It was nothing to do with me playing for three non-league clubs already this season.
“Apparently you have to cancel any registration by the 31st January if you want to then enter the professional league and that hadn’t happened with me.
“Apparently not many people do it that way around so literally no-one knew that rule.
“It was the most frustrating few days of my career.
“Even the EFL stopped getting back to me after I’d been pestering them for help!”
Steele went to school at Arthur Mellows Village College in Glinton and joined the Posh youth set up in 1999.
He played twice for Posh at the back end of the 2001-02 season before he earned a dream £500k move to Manchester United. He didn’t play for United, but went on to enjoy a terrific career with Coventry, West Brom, Barnsley, Panathinaikos, Bristol City, Nottingham Forest and Millwall making 379 senior appearances in total.
Steele had the chance to return to Posh in the summer, but was unsure how often he would play. Posh went on to sign Hungarian youth international Gyollai from Wigan instead.
Steele has played for Spalding Sunday League side Jubilee FC, Peterborough Northern Star Reserves and Stamford AFC this season. He played for an hour of Stamford’s famous 1-0 FA Trophy win over Kidderminster. Stamford held Steele’s registration on January 31.
League One rivals Swindon Town were also reportedly interested in signing Steele in January.
* Luke Steele is hosting a goalkeeper coaching camp on behalf of his Youth Dreams Project company on April 6 & 7 (10am-2pm) at St John Fisher School.
It’s £35 a day. Bookings can be made through the Youth Dreams website.