Mohamed Salah netted with his right foot just before half time and again on 90 minutes with a back heel to send Reds fans into a frenzy after a nervy second-half performance.
Story of the game
It was a relatively quiet opening 45 minutes at Anfield as both sides struggled to create many clear-cut chances.
With five minutes on the clock, Troy Deeney scuffed a decent opening for the visitors after he failed to connect with a good ball in from Ismaïla Sarr.
The forward had made a run into the Liverpool box inbetween Joe Gomez and Trent Alexander-Arnold, but poor decision making saw the chance pass.
A minute later, Salah nearly slipped in Roberto Firmino, but the forward’s touch lets him down and he was crowded by the Watford defence. He would've been 1v1 with Ben Foster otherwise.
There was another chance for the visitors on 22 minutes as Will Hughes dragged an effort wide.
Liverpool started to pile the pressure on as they caught Watford out on the break. Salah picked the ball up in a dangerous position but held onto the ball for too long, his eventual shot was off target.
On 32 minutes Virgil Van Dijk was forced to make an important clearance. Abdoulaye Doucouré's cross in was dangerous, but it was dealt with easily by the Dutch defender.
Four minutes later, there was a huge chance for Doucouré, but a miss kick from the forward allowed Gomez to clear it.
The resulting corner ended with Liverpool counter attacking. A pass was flicked on by Firmino and Sadio Mane and Salah used their blistering pace.
Salah controlled the pass from Mane, came inside and sent a curling effort into the far corner.
Watford were left ruing wasted chances as Sarr missed another sitter on the brink of half-time.
He picked up a parried save from Alisson, in space, but completely miss-hit it and the opportunity passed.
Liverpool thought they’d extended their lead through a fantastic Mane header early in the second half.
Xherdan Shaqiri’s pin-point cross was headed straight past Foster. Replays showed a tight offside call, Mane’s hip appeared to be ahead of the last defender and the goal was ruled out.
Gerard Deulofeu made a dangerous run soon after, looking to capitalise on a rather taken aback Liverpool, but Alisson made a fantastic save to maintain the Reds' lead.
Jurgen Klopp's side refused to let the offside decision knock them back as they piled on the pressure to earn the second.
Chances in quick succession came for Firmino and Salah, both failed to find the back of the net.
Firmino had an effort saved by Foster and Salah dragged an effort wide.
Tempers started to flare, though, as Salah was fouled by Christian Kabasele in the build up to Firmino scuffing an opportunity.
Another huge chance went begging for Liverpool as substitute Andy Robertson found Firmino in space on the penalty spot.
The forward took a touch instead of taking it first time and a tame effort was cleared by the Watford defence.
On 76 minutes, Gomez had to make a fantastic, perfectly timed tackle on Sarr to prevent a certain goal for the visitors as they looked to break from a corner.
There was a huge moment of panic for Liverpool after Gomez was unable to deal with a cross-field pass.
Poor build-up from Watford saw the Liverpool defence easily collect it, but then that was followed by a strange back-pass from Van Dijk to Alisson.
It was completely mis-timed and rolled, thankfully, wide. Much to the relief of everyone around Anfield.
The nerves at Anfield were eventually put to bed on 90 minutes as an audacious back-heel from Salah extended their lead and ensured the three points would remain on Merseyside.
Divock Origi took the initial opportunity, he looked to have completely missed it before it went straight to Salah and into the back of the net, through the legs of Kabasele.
Takeaways from the match
Mohamed Salah, take a bow
Two fantastically taken goals from the Egyptian pushed the Reds to victory and extended their lead at the top of the table.
The forward missed a handful of sitters midweek against Salzburg, before scoring his most difficult opportunity of the night from a ridiculous angle.
Today, he certainly took his chances with a goal in both halves.
Liverpool find a way to win
It's become a theme of the season for the league leaders as they found a way to win under difficult circumstances.
Another contentious offside decision, followed by some defensive mishaps from the Reds backline - Watford smelt blood.
They managed to fend off any late pressure from the visitors, though, and scored a second to put the game to bed.
That's three clean sheets in a row for Klopp's side and their first home clean sheet of the season.
Plenty for Nigel Pearson to be positive about
It's been a horrid first half of the 19/20 season for Watford, but their second managerial change of the campaign has provided a much needed lift at the club.
The Hornet's record at Anfield in recent years hasn't been great, with two 5-0 defeats in the last two years.
But today, they restricted the scoreline to two and prevented the Reds from being at their free-flowing best.
A solid defensive display will give Nigel Pearson huge amounts of confidence going forward.
With that, they also caused Liverpool a lot of problems and better finishing could've led to an entirely different game at Anfield.