The home side doubled the lead 11 minutes later after a quick counter-attack ended with James Maddison excellently controlling a crossfield pass from Marc Albrighton on his knee before volleying into the bottom corner.
The goal went some way to make up for the red card Maddison received last week in the draw at Brighton & Hove Albion after getting a second yellow for simulation. The midfielder conceded that incident had been on his mind.
"I made a mistake last week, and I was the first one to hold my hands ups, I needed to make an impact to make amends and thankfully I did that and hopefully that is in the past now," Maddison told the BBC.
Watford struggled to contain Leicester's pacey attack and had Etienne Capoue sent off late on for a reckless challenge on Kelechi Iheanacho.
The home side's display recalled the performances they often produced in their title-winning season of 2015-16 and manager Claude Puel was delighted they were finding their swagger again.
"The win was important against a strong opponent with a direct style and we forced them to open their lines. It was difficult but we managed it well and made a fantastic counter attack move with great goals and a good clean sheet," he said.
"It was a fantastic goal (Maddison's), the two goals were from counter attack simplicity and good runs into a space with good understanding between players. It was perfect."
The result meant Leicester moved up to seventh in the standings ahead of Manchester United, who were playing at Southampton later on Saturday, on goal difference.
Watford slipped to 10th, and have not won in the league, home or away, since October. Manager Javi Gracia signed a new 4-1/2-half year contract this week but his side's poor finishing left him with nothing to celebrate.
"In the last games we are leaving with similar situations and we need to try and improve and finish better and then these games will maybe finish better for us," Gracia said.
"Today was a good performance in the beginning with more possession, 62 percent, but it wasn’t enough because we didn’t shoot on target. We are around the goal posts but didn’t finish and we need to improve in that situation."
Watford will need to find their shooting boots quickly as they host unbeaten champions Manchester City on Tuesday.
(Reporting by Christian Radnedge; editing by Clare Fallon and Ken Ferris)
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