The former Wigan trainee has joined the Foxes following a successful trial with the club's development squad.
Having joined up with Steve Beaglehole's players last month, the versatile Watson has featured in all four of Leicester's Barclays Under-21 Premier League matches so far this season - impressing both in central midfield and at right-back.
The 20-year-old gained some Football League experience last season with a loan spell at Accrington, where he made his professional debut against Morecambe in the Johnstone's Paint Trophy.
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- Steve Beaglehole