Sven Goran Eriksson opted for an unchanged starting 11 that swept aside Forest on Monday night – with Roman Bednar again leading the line for the Foxes.
But, a repeat performance of Monday’s dismantling of Forest was clearly not on the cards, as Watford dominated play right from the first whistle.
Leicester looked shaky at the back and it was only a matter of time before the Hornets made an early break through.
On 15 minutes a free kick was sent into a crowded Leicester 18 yard box. John Eustace was able to connect with the delivery to send the ball past Weale and into the bottom right hand corner to give the home side the lead.
The Foxes were clearly struggling to cope with the confident attacking approach by Watford but did come close to an equaliser seven minutes later when Greg Cunningham sent in an inch perfect cross that was headed agonisingly wide by Roman Bednar.
Watford then doubled their lead two minutes later when Jack Hobbs failed to deal with a long ball from Don Cowie that fell kindly to the feet of Will Buckley – Chris Weale rushed out but missed the ball to leave the striker with the simplest of finishes.
Eriksson’s men looked shell shocked and nearly fell victim to a third goal when an in swinging cross from the side line found Taylor free on the penalty spot, but the defender placed his header wide of Weale’s post.
Leicester did show promising signs late in the first half though and nearly found a life line through Gallagher who will feel he should have done better with two efforts.
First the winger had a shot well saved by Scott Loach before he opted to send in a cross to the back post from a close range free kick when a shot on goal looked a far better option.
Eriksson’s men came roaring back in the second half and nearly halved the Hornet’s lead but Bednar’s close range header from yet another good corner from Cunningham was adjudged not to have crossed the line.
Ten minutes into the second period the Foxes finally got their goal when Kyle Naughton’s looping ball in the box was handled and the referee pointed to the spot. This time Paul Gallagher didn't disappoint, smashing the penalty past Loach to give City hope of a comeback.
Gallagher nearly levelled for the fired-up Foxes five minutes later but he failed to make the most of Andy King’s assist.
The game was becoming stretched with both teams searching for the fourth and crucial goal of the tie and, but for some incredible defending from Jack Hobbs, Watford would have been out of sight.
Hobbs made up for his horror show earlier in the match that lead to Watford’s second goal when he found himself stranded at the back but, just as Danny Graham looked to have found Mutch at the far post, Hobbs stretched to intercept the ball and clear the danger.
Eriksson then called upon the fresh legs of target man Steve Howard who replaced Roman Bednar before top goal scorer Andy King was brought off to be replaced by Matt Oakley as the boss looked for a reaction from his men.
Moments later, Gallagher became City’s hero when he found the net with a rasping right foot drive that flew into the net despite Scott Loach getting his finger tips on the ball.
The Foxes now had their tails up and began to dominate play in midfield as the home side looked rattled having spurned a series of chances to double their lead earlier in the match.
Roared on by the Foxes faithful, City looked the more likely to score the winning goal of the tie and they nearly did just that with ten minutes to go.
A fiercely whipped in corner by Gallagher was knocked on by Hobbs but evaded Yuki Abe who was inches away from getting a vital touch at the back post.
The match grew into a frantic affair with five minutes to go and only a superb double save from Chris Weale kept the score level, if only for 30 seconds.
Moments after Weale’s heroic saves, the home side regained their lead when Danny Graham capitalised on some poor defending to head past Weale from close range to give Watford all three points and the last laugh in a highly entertaining encounter at Vicarage Road.
Eriksson will know his side were far from their best today and will want to put things right when the Foxes host Doncaster Rovers at the Walkers Stadium next Saturday.