Joe Cooper took two points away from the champion and the American challenger won on a majority decision – 113-112 on two cards against 114-111 for Khan.

The excellent fight was marred by debatable refereeing but Cooper's mistakes did not take away from a fine performance by Peterson, who was knocked down in the first round.

Even that was a controversial decision because Peterson landed on the canvas more because of poor balance than from a glancing shot to the top of the head.

Khan was magnificent in the opening round and for much of the fight scored well by moving and hitting. But he was caught on the ropes too many times where Peterson outfought him on the inside.

Cooper took a point away from Khan for “pushing” in the seventh round and did it again in the twelfth, effectively denying Khan a draw that would have enabled him to retain his titles.

Judges George Hill and Valerie Dorset scored the fight for the hometown hero and judge Vasquez made the Briton a three-point winner.

In the first world title fight in 18 years in Washington, Khan's record dropped to 26-2, with 17 knockouts. Peterson, who was born in Washington, now stands at 30-1-1; 15.

Khan, who turned 25 last Thursday, loost for the firm time since being knocked out by Breidis Prescott in 2008.

Khan, who made liberal use of his elbows, was often forced to push Peterson away from him as the American ducked low and held on to avoid being tagged from a distance by the flashing hands of the Briton.

There was a lot of borderline hitting that could have been called low blows but Cooper, a veteran of about 30 world title fights, was out of his depth this time.

Peterson, looking a little like a smaller version of Mike Tyson, landed most of the big shots and tested Khan's suspect chin to the full. Khan took it well and there was never a moment when either boxer came close to a knockout.

The standard of the boxing and the controversial result make a rematch almost inevitable before Khan moves up a division to chase big-money fights.

Earlier, American heavyweight Seth Mitchell stopped Timur Ibragimov after 2 minutes 48 seconds of the second round to improve to 24-0, with one draw and 17 knockouts. Ibragimov dropped to 30-5, with a draw and 16 knockouts.