In a large glass bowl, combine peppers and onion. Place pickling spices and celery seed on a double thickness of cheesecloth. Gather corners of cloth to enclose seasonings; tie securely with string., In a small saucepan, combine sugar, vinegar, water and spice bag. Bring to a boil; boil 1 minute. Transfer spice bag to pepper mixture. Pour vinegar mixture over top. Cool to room temperature. Refrigerate, covered, 24 hours, stirring occasionally., Discard spice bag. Refrigerate pickled peppers up to 1 month.