The Peterborough left-back has signed a new three-year deal at London Road, ending Danny Cowley’s hopes of luring him back to Fratton Park.
Butler, who came through the Blues academy ranks, had been identified as a target of the new PO4 boss as he bids to overhaul the current Pompey squad.
With Charlie Daniels not having his contract renewed, Lee Brown remains the club’s only senior left-back.
Butler, who made 54 appearances for the Blues between 2012-15 before moving to Newport County, was seen as an ideal acquisition for the position and a player who could help revitalise the Pompey ranks.
Yet, Cowley will now have to look elsewhere, with the 26-year-old Isle of Wight-born ace extending his stay at Championship-bound Posh.
Butler told the Peterborough website: ‘It was probably the easiest decision I have made in football.
‘I am really excited for the future; a lot of the boys are already signed up and we can look forward to what’s ahead.’