Newcastle fell behind in the first half of their Group D clash following Danny Ormerod's penalty at the Weston Homes Stadium.
United's youngsters, who beat Peterborough 2-0 in their reverse fixture at Whitley Park last month, were unable to grab a leveller as their six-game unbeaten steak across all competitions came to an end.
Peterborough created the opening chance in front of goal as Ormerod, who scored 31 goals for last season's National League North winners AFC Fylde, dragged a low effort wide of the right-hand post after latching onto Eddie Fox's dangerous pass.
George Mair, one one of five changes from last week's 1-1 draw against Reading in the Premier League 2, produced an excellent save to prevent Kurtis Simmons from opening the scoring as the 17-year-old goalkeeper produced a outstretched one-handed save to push away the left winger's first-time effort following Declan Frith's dangerous cutback from the right byline.
The Darlington-born 'keeper, who signed his first professional contract with the Magpies in September, was alert once more to push away Simmons' low drive at goal after the Posh forward dangerously cut inside from the right flank, with the loose ball hooked to safety.
Alfie Seldon, another Magpie Academy product to sign a maiden pro deal on his 17th birthday, was unable to fire Newcastle in front as the left winger saw a firm effort blocked by James Dornelly before Mason Miley blazed a long-range effort over the crossbar.
Kacey Wooster, targeting a first goal at Under-21 level, went close for the visitors towards the half-hour mark after the 18-year-old striker, who scored ten times in the Under-18 Premier League North last season, drove a low effort from the edge of the box wide of the left-hand post.
Mair carried out another fine stop shortly after as the teenage shot-stopper got down quickly to turn away Fox's goal bound effort with his left leg.
In the 38th minute, though, Mair's hopes of a first clean sheet at Under-21 level were dashed as Ormerod scored from the penalty spot. After Frith was brought down inside the box following a dangerous dash towards the right byline, Ormerod calmly dispatched the resulting spot kick, sending Mair the wrong way in the process.
Mair prevented Ormerod from doubling his and Peterborough's tally shortly after the restart as the Posh striker's stinging effort inside the penalty area forced the United goalkeeper into beating the ball away before the Magpies defence eventually cleared the ball to safety.
Wooster, who joined Newcastle's Academy from Southend United as a 15-year-old, went close to equalising in impressive fashion as the teenage striker produced a neat flick on the right wing to evade his marker but, after driving dangerously into the box, saw a low attempt turned out for a corner by Posh keeper Collin Andeng-Ndi's left leg.
Guy Bloomer, introduced from the bench, was unable to net a stoppage-time equaliser after a loose ball fell to the Prudhoe-born youngster at the back post but his shot from an acute angle was turned away by Andeng-Ndi.
Newcastle's second-string, who remain in second place of their four-team group on six points, are back in Premier League Cup action on Wednesday, 18th November when facing an away clash against Nottingham Forest at the Loughborough University Stadium (kick-off 7pm GMT).
Newcastle United Under-21s: George Mair, Henry Johnson, Dylan Charlton, Miodrag Pivaš (c), Logan Watts, Mason Miley (Fraser Harper 60), Kyle Fitzgerald, Jayden Kouossu, Kacey Wooster (Alfie Hutchison 82), Johnny Emerson (Guy Bloomer 82), Alfie Seldon (Baran Yıldız 87).
Subs not used: Luke Craggs, Tyler Jones, Thomas Old.
Photograph courtesy of Joe Dent (Peterborough United Football Club)
