McKinlay was given the job following the resignation of Giuseppe Sannino after five games and Oscar Garcia's decision to stand down for health reasons at the end of September.
Sannino joined Watford last December but despite the team winning four of their first five league games of the season, he resigned on Aug. 31 amid reports of dressing room unrest.
He was replaced by Garcia, who stepped down on Sept. 29 after being admitted to hospital with chest pains.
McKinlay, who left his job as Northern Ireland's assistant manager, took over and in his eight days in charge at Vicarage Road, Watford beat Brentford 2-1 and drew 1-1 with Brighton on Saturday.
Watford owner Giampaolo Pozzo, who also owns Udinese in Italy and Granada in Spain, said the move to replace McKinley so quickly was in the "long-term interests" of the club.
"There can be no compromise on this -- whatever the circumstances," the BBC reported him saying.
"I fully support and endorse the view from our technical staff that, given the talented squad which has been assembled and our position in the league, an experienced head coach with a winning pedigree is of primary importance to help ensure the success we are all striving for.
"The supporters of Watford have always been very understanding towards our project here and I am certain they will continue to do everything they can to support the new coach and his squad."
Watford are third in the Championship (second tier) on goal difference with 21 points from 11 matches, the same total as leaders Norwich City and second-placed Nottingham Forest.
The 46-year-old Jokanovic played 64 times for his country as a defensive midfielder and spent two years at Chelsea from 2000-02.
He previously managed Partizan Belgrade, Levski Sofia and Spanish club Hercules.
(Reporting by Mike Collett, editing by Ed Osmond)
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