Green goes out on loan.
Posh pipped Town to the pounds 200,000 signing of the left-sided midfielder from Dagenham and Redbridge two years ago.
Green, now 21, attended a Galpharm game and looked all set to sign for Stan Ternent until accepting a London Road offer.
He has scored twice in 31 appearances for Posh after playing 15 times and scoring once for the Daggers.
Green, pictured left, netted twice in 10 outings on loan to Chesterfield last season and now looks for further experience in the Blue Square Premier.
Diamonds boss Justin Edinburgh said: "He's primarily a winger but can play up front too.
"He hit the scene pretty quickly at Dagenham and Peterborough snapped him up."