Playing two days after the 0-0 draw at Crystal Palace, City took just 38 seconds to open the scoring as Raheem Sterling slotted home Leroy Sane’s cross for the quickest goal in the Premier League this season.
City, who are 15 points above second-placed Manchester United, doubled their lead when Kevin de Bruyne’s cross was turned into his own net by a sliding Christian Kabasele.
De Bruyne, who started the match after recovering quickly from a nasty looking injury against Palace, then had a free-kick tipped on to the bar by Heurelho Gomes.
City got the third goal their dominance merited when Sergio Aguero scored from close range after the Watford goalkeeper parried De Bruyne’s cross.
Andre Gray netted a late consolation for Watford, tapping home Andre Carrillo’s low cross.
The visitors, who remain 10th by virtue of their early season form, have lost 10 of their past 14 games.
City boss Pep Guardiola said after the game – his team’s 10th in a month – that the busy festive period is “going to kill the players”.
The leaders were without striker Gabriel Jesus, who will be out for one to two months after injuring a knee against Palace, but that just meant a start for all-time top scorer Aguero.
De Bruyne recovered immediately from his Palace knock to start, while defender John Stones returned from the hamstring injury which had sidelined him for over a month and playmaker David Silva was back after two games out for personal reasons.
However, Guardiola said after the game that Silva might need more time off.
City – wanting to make things right after dropping points for only the second time this season – led 2-0 after 13 minutes. They could almost relax at that stage against a team totally out of form.
Sterling’s opener was City’s third quickest in the Premier League era.
Aguero – who has now scored 10 goals in six games against Watford – would have scored earlier had Kabasele not turned De Bruyne’s cross into his own net before it reached the Argentine.
He missed a hat-trick of chances from De Bruyne crosses, denied twice by Gomes and heading well wide, before scoring after the goalkeeper’s fumble.
Stones also fired a glorious chance well over from six yards, and headed straight at Gomes from the rebound after De Bruyne’s free-kick was saved onto the bar.
Watford’s late goal denied them a perfect day, with a run of three consecutive clean sheets coming to an end.
But they are now 16 games away from an unbeaten Premier League season, despite Guardiola’s insistence it will not happen.
The one concern was right-back Kyle Walker walking off holding his groin at the final whistle, and Guardiola said the club would have to “check it out”.
