They were shut out 3-0 and lost defenceman Davey Phillips late in the game, after an awkward collision while attempting to deliver a hip check.
Coach Aaron Fox said: “The situation we are in is frustrating, we have to close the door on it. The game in Fife (this evening) could be a season-changing performance for us.
“We can’t let this slip away from us and need to give ourselves a chance going down the stretch. It takes team commitment and us playing the game a certain way."
Steelers had made the short journey down the M1 without netminder Barry Brust and utility player Evan Mosey, both sidelined with injuries. Tommaso Traversa was the healthy scratch after warmup.
The hosts scored with their first shot of the game as defenceman Kevin Massy was on hand at the back post to one-time home from a Kevin Domingue pass after just 16 seconds.
Spurred on by the momentum, Nottingham forced Steelers netminder Rok Stojanovic to make some important saves, especially on the penalty kill at 03:46 while John Armstrong sat out a minor penalty for hooking.
Steelers regained their composure and offered chances of their own later in the period coming close on a powerplay with Panthers' netminder Kevin Carr denying Marco Vallerand with a close-range glove save and Robert Dowd hitting the post.
Stojanovic was called upon once again early in the second period denying the Panthers on a two-on-one opportunity with a sprawling save at 23:38.
Sheffield came close at 32:24 when Vojtěch Polák forced a save from Carr resulting in the Panthers' netminder being out of his crease.
The ensuing rebound fell to Justin Hodgman who couldn’t hit the target.
At 37:22 Panthers made it 2-0 with a shorthanded goal with Sean Richards capitalising on a breakaway effort after a defensive zone clearance took a bounce off Steelers defenceman Kevin Schulze’s skate, gifting the Panthers' forward an opportunity to skate in and slot the puck low past Stojanovic.
Steelers rallied in the third period, but it was a case of too little too late and frustrated players trying to claw their way back into the game but neglecting some of the team systems work in the process.
Steelers were denied twice by the ironwork, firstly from a Vojtěch Polák shot and then a Justin Hodgman re-direct from close range.
Panthers sealed the victory with just under four minutes of the game remaining, as Robbie Baillargeon took advantage of a breakdown in communication between Stojanovic and Steelers forward Matias Sointu, firing past Stojanovic.
Sheffield are now four points behind leaders Belfast Giants with a game in hand.