Manchester City revived their fading title hopes with a 4-0 rout of bottom club Aston Villa and the pressure mounted on Newcastle United manager Steve McClaren after a 3-1 home defeat by Bournemouth.
Leicester dominated the first half against Watford but were unable to breach a disciplined defence until the 56th minute when Mahrez produced a moment of class with a fine strike from the edge of the penalty area.
"It was very tough, we knew coming here would be a tough ask," Leicester goalkeeper Kasper Schmeichel told Sky Sports.
"Riyad has come up with a bit of magic so we are delighted," he added. "I think all the way through we have had the belief that we have the players going forward to do something special."
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Arsenal, who had Francis Coquelin sent off early in the second half, will be happier than Spurs with a point in the north London derby after Alexis Sanchez grabbed a late equaliser to end a run of three successive defeats in all competitions.
Toby Alderweireld's low angled drive and Harry Kane's brilliant curling shot had put Tottenham ahead after Aaron Ramsey's clever flicked finish gave Arsenal the lead.
"You feel frustrated and disappointed because at 11 against 10 you need to keep that result," Spurs manager Mauricio Pochettino said.
Arsenal manager Arsene Wenger thought Coquelin's sending-off for a needless foul wide on the touchline had been decisive.
"I'm happy and proud of our attitude, we refused to lose the game," Wenger said after his side avoided suffering four straight defeats for the first time since 2002.
"But we have big regrets because I couldn't see when it was 11 versus 11 how we would drop points today. We made a big mistake at 1-0. (Coquelin) knows he made a mistake."
Leicester lead the standings on 60 points with Tottenham on 55, Arsenal 52 and Manchester City 50.
MISSED PENALTY
City's Sergio Aguero scored twice and missed a penalty as they overwhelmed Villa, who are eight points adrift at the foot of the table, with four second-half goals at the Etihad Stadium.
Newcastle remained second-bottom, a point from the safety zone, after the defeat by Bournemouth and McClaren was roundly booed by the St James' Park crowd.
Steven Taylor's first-half own goal put Bournemouth ahead and Josh King doubled their lead in the 70th minute. Ayoze Perez pulled one back for the hosts 10 minutes later before Charlie Daniels ended Newcastle's hopes of a fightback.
"I’m very disappointed. That was definitely a poor performance and 'going down' material. The only positive is that we have 10 games to go," McClaren said.
Champions Chelsea were held to a 1-1 draw by Stoke City at Stamford Bridge, Mame Biram Diouf heading a late equaliser for the visitors after Bertrand Traore had put the Londoners in front.
West Ham United scored three goals in the last 12 minutes to secure a dramatic 3-2 win over 10-man Everton, who had Kevin Mirallas sent off after 34 minutes, at Goodison Park and climb to fifth on 49 points.
Southampton's Virgil van Dijk struck in stoppage-time to earn his side a 1-1 draw with fourth-bottom Sunderland and Swansea City won 1-0 against fellow strugglers Norwich City, who stayed in the relegation places.
(Editing by Ken Ferris)
