A second half opener from Billy Sharp, as well as a Callum Morton own goal, handed Sheffield United the three points at London Road.
The loss means Posh now have only one win in their last 13 Championship matches and remain in the relegation zone.
They now face an FA Cup clash with QPR before returning to league action against Cardiff City.
Here are the best of today’s transfer rumours...
1. Blades striker to make Italy move
Sheffield United's Lys Mousset is set to join Serie A side Salernitana before Monday's deadline. The Italian are rock bottom of the league - eight points from safety. (Sky Sports) Photo: George Wood
2. Aberdeen eye Blackburn ace
Aberdeen are considering a loan move for Blackburn Rovers midfielder, Jacob Davenport. The 23-year-old joined the Championship club from Mancehster City in 2018. (The Press and Journal) Photo: Alex Davidson
3. Spurs consider Boro swoop
Tottenham Hotspur are reportedly considering deadline day moves for Brighton's Yves Bissouma and Middlesbrough's Djed Spence. The right-back's impressive season on-loan with Nottingham Forest has attracted plenty of Premier League interest. (Mirror) Photo: DANIEL LEAL
4. Barnsley enter race for Ipswich Town youngster
Barnsley have joined Hull City and Cardiff City in the race to sign Ipswich Town teenager, Tyreece Simpson. The 19-year-old spent the first half of the season on loan at Swindon Town, scoring 11 goals in 30 matches. (Football League World) Photo: Catherine Ivill