The Blues struggled to turn their dominance into more goals after Pablo Zabaleta’s first half volley but finally sealed the points late on through David Silva.
City needed a victory after back-to-back Premier League losses but found it difficult to break down a well-organised Watford defence in the opening stages.
The Blues dominated possession but only created a couple of half-chances in the first half-hour with Kevin De Bruyne and Nolito both denied by Watford keeper Heurelho Gomes.
Watford had come to spoil the party and were guilty of a number of niggling fouls before the break-through finally came for City on 32 minutes.
De Bruyne spotted Zabaleta in space in the box and sent a perfect lofted cross to the Argentine who volleyed home from eight yards for only his 11th goal in 317 appearances for the Blues.
It was no more than the hosts deserved with Watford offering no threat whatsoever up to that point.
Ilkay Gundogan hobbled off with what looked like a knee injury before the break as City looked to record a welcome clean sheet.
Watford attempted to come out of their defensive shell a little after the break but it was still powder-puff stuff for the most part.
Nolito’s smart turn and low drive came close to doubling the Blues' lead on 54 minutes and then a stunning Raheem Sterling run brought the Etihad to its feet as he skipped past three challenges before striking a powerful shot against the top of the crossbar.
The Blues, who had failed to score more than one goal at home in the Premier League since mid-September, were desperate to find the goal that would kill the Hornets off.
It was 75 minutes before Claudio Bravo was finally forced to make a meaningful save and City almost paid a heavy price for not tuning possession into goals as Odion Ighalo looked nailed on to score as he met Nordin Amrabat’s superb cross on the volley eight yards out but the ball went inches over.
It was a sharp reminder that, for whatever reason, City need to find their shooting boots at the Etihad or risk dropping more precious points in the weeks ahead.
END GAME: David Silva's strike seals victory for City
With the nerves of the home fans starting to drift down from the stands, finally, the Blues got a decisive second.
Sterling, Silva and Toure’s pressing saw Silva race towards goal before playing in Sterling who returned the compliment with a simple return pass that allowed Silva to finish emphatically from 10 yards.
That was pretty much it in a game that City controlled from start to finish – save for that close Ighalo scare!
Ighalo’s volley near the end came within a whisker of levelling the scores, though the Hornets barely deserved anything from the game – had it gone in, it would have left a very different complexion on the game – but it didn’t!
There were solid performances all over the pitch for City with Sterling’s slalom runs impressing and both Nolito and Yaya Toure working hard throughout. Gael Clichy had an impressive second half on a night when the Blues kept things simple and steady.
How did the Blues’ defence fare?
Watford offered little in attack so the City defence was rarely tested. That said, a quiet night was welcome, particularly with Arsenal next up at the Etihad.
Man of the match:
A clean sheet, booking and a rare goal for skipper Zabaleta just edged the star man honours off the livewire Sterling.
City will look to overhaul Arsenal when the teams meet on Sunday.
Tonight’s win puts the Blues just a point behind Arsene Wenger’s side who will be smarting after their 2-1 defeat at Everton on Tuesday night.
Neither side can afford to allow Chelsea to get much further ahead, even at this stage of the season so expect a tense but open 90 minutes.