Hughes joined the Eagles from Lincoln during the close season for £300,000, but new manager Neil Warnock has confirmed the player has no future at Palace.
The 22-year-old left-back will stay with Peterborough until January. However, a permanent deal looks unlikely as the Posh have recently had a deal for Wycombe's Tom Williams fall through because the player wanted a full-time move.
Hughes' future at London Road would therefore seem to depend on whether Peterborough can free up some more money in the intervening couple of months.