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...
5. Hull City target Fulham defender
Hull City are hoping to sign Fulham's Steven Sessegnon before tomorrow's deadline. The 21-year-old has fallen down the pecking order under Marco Silva and is yet to make a league appearance this season. (Football Insider) Photo: MB Media
6. Posh eyeing reunion with Terriers star
Peterborough United have reportedly opened talks to re-sign Huddersfield Town midfielder Reece Brown. The 25-year-old enjoyed two loan spells over the past three years. (Football Insider) Photo: William Early
7. Tigers eyeing ex-Sunderland midfielder
Hull City are weighing up a move for Dijon midfileder Didier Ndong. The 27-year-old joined Sunderland for over £13 million in 2016. (TEAMtalk) Photo: BSR Agency
8. West Brom keeper to join Luton Town
West Brom goalkeeper Alex Palmer is reportedly set to join Luton Town on loan before deadline day. The 25-year-old has been the Baggies' third-choice keeper this season. (The 72) Photo: Chloe Knott - Danehouse