The 31-year-old midfielder, who has fallen out of favour under new boss Mark Cooper, would have been out of contract at London Road at the end of the season.
"Dean has played a massive role in our recent successes," Posh director of football, Barry Fry, told the club's official website.
"He has given tremendous service to this football club.
"He has always given 100% in his performances and I am sure the supporters recognise his achievements."