Is it taboo to disclose info to 3rd parties about the review status of a paper of other authors? I was under the following situation and I'm not sure which would have been the right way to handle it.

I was refereeing a paper. I suggested that the authors could cite a very recent paper which was uploaded on a repository (so, not official publication but publicly available nevertheless) that could have solved one of the conjectures they mentioned. 

They respond that they do not want to cite unofficial publications that have not been fully verified yet (as indicated in their opinion by acceptance on one of the venues). This respond is somewhat understandable.

But they went an extra step and they said that the mentioned pre-print probably has mistakes (no reference) since it was submitted to XX venue and was rejected thus they do not want to cite it.


  Is it normal that they disclosed to me some private information about a submission of a paper and its status? 


I felt uncomfortable about this disclosure of private information. How could they know that it was indeed submitted? How could they know why it was rejected? Even if they know (for example by communication with the authors) what gives them the right to announce this to me (an anonymous referee-maybe I'm one of the authors of that preprint). Note that the two papers have disjoint sets of authors.


  Question: What would be the most appropriate way to handle this situation? I let it be, but I feel that the authors have crossed many lines with their responses and I still feel somewhat uncomfortable for this.
To me, their response was very unprofessional. I'm assuming that the review is still blinded and further communication with the authors directly may not be possible or even useful. 

As a peer reviewer, you are a volunteer for the journal. If the lack of professionalism of the authors made you uncomfortable, you could communicate this with the editor. Although the editor might not do anything about it, he or she might reconsider publishing future papers from authors who do not respect blind peer review. Publishing our work is a privilege, not a right. I am not an editor, so I'm not sure how editors may handle such a situation. Although this case involved the reviewer and not the authors, PLOS ONE received attention a few years ago for removing a reviewer who made a sexist remark in their review: http://www.sciencemag.org/news/2015/05/plos-one-ousts-reviewer-editor-after-sexist-peer-review-storm