The 35-year-old, who spent five years as a player at London Road before a recent stint with Linfield, was named as assistant manager to Dave Robertson at the end of May.
He told the club website: “I have had so many highs during my playing career and I look back with great pride.
“I left Northern Ireland at the age of 16 to fulfil my dream of making it as a professional footballer and to play in the Premier League and every professional league in England has been something that I have really enjoyed.
“I have been promoted three times and each time has been an unbelievable feeling. I would like to take this opportunity to thank all of those clubs that I have represented and the fans for the support that I have received during my career.
“I have been fortunate to represent my country, Northern Ireland, 39 times and have played against some of the best players in the world.
“Now I want to concentrate on helping the young lads at Peterborough flourish and pass on my knowledge to them. I can concentrate on being the best coach I can possibly be for the football club that I love.”