Darren Ferguson's men ignited their chase for a second successive promotion by slashing the gap between themselves and the beaten Foxes to four points at the top of the standings.
Goals from central defender Charlie Lee and wideman Chris Whelpdale settled the issue as Posh surged to a sixth successive victory during a magnificent March - and in the process they claimed revenge for a 4-0 drubbing in the reverse fixture in December.
Both chances and classy football were at a premium in a dour opening period ravaged by a strong wind and intermittent hailstorms.
But the majority of a sell-out 14,000-plus London Road crowd were in raptures when Lee stamped his class on proceedings to break the deadlock seconds before the interval with a glorious strike.
The former Tottenham youngster tricked his way past three Foxes defenders after collecting a loose ball in the box and guided a classy left-footed finish into the far corner past keeper Tony Warner.
That goal provided the spark for a dominant Posh display in the second period.
Top-scorer Craig Mackail-Smith failed to convert two one-on-one chances and Warner pulled off a couple of outstanding saves to keep out an Aaron McLean header and a goalbound Dean Keates free-kick, which he tipped onto the bar.
But long-time leaders Leicester, who couldn't muster a single shot on target, were eventually killed off by Whelpdale's sixth goal-of-the-season with 11 minutes remaining.
He finished in style from 15 yards after racing onto Mackail-Smith's defence-splitting pass and it was no more than Posh deserved as they set the record straight in some style.
Even the dismissal of manager Ferguson to the stands by referee Chris Foy couldn't detract from a power-packed performance.