The second tier's leaders rescued a point through Danny Drinkwater's last-gasp stunner as they drew with the Hornets, while Sean Dyche's men are now 19 games unbeaten at Turf Moor
The Hornets broke the deadlock against the run of play after just nine minutes when Fernando Forestieri latched onto Troy Deeney's curling cross from the left with a great diving header into the bottom left corner.
Leicester searched for a swift response, with David Nugent and Marcin Wasilewski both coming close to equalising, but Sean Murray made them pay for those misses by doubling Watford's lead after 40 minutes with a well-struck shot from just outside the box.
Matthew James got the Foxes back into the game just before half-time when he connected with Ritchie De Laet's cross from the right and it looked as though Watford had done enough to withstand heavy second-half pressure from Leicester but Drinkwater sealed a share of the spoils with a fantastic first-time strike into the top-left corner.
The draw ends Nigel Pearson's side's nine-game winning streak in the Championship but Leicester do hold an 11-point lead at the top of the table.
Burnley moved into second spot after coming from a goal down to beat Millwall 3-1 at Turf Moor, setting a new post-war record by going 19 games unbeaten on home soil.
Martyn Woolford's strike after 26 minutes put the visitors ahead but the lead was short-lived as Danny Ings equalised two minutes later.
Dean Marney put the home side in front on the stroke of half-time before Ings - who also missed a first-half penalty - bagged his second of the game to wrap up the victory just after the hour mark.
Promotion hopefuls Reading slumped to 2-0 loss against Sheffield Wednesday at the Madejski Stadium.
Nigel Adkins's men - who had won their previous two home games 5-1 and 7-1 - made a poor start when Alex Pearce was shown a straight red card for bringing down Benik Afobe in the penalty area on eight minutes, with Chris Maguire dispatching the resulting spot kick for his fifth goal in six league outings.
Afobe, who had a brief loan spell at Reading in 2012, piled more misery on the Royals with Wednesday's second on 57 minutes.
Brian McDermott returned to the Leeds United dugout and saw his team recover from a goal down to beat bottom side Yeovil Town 2-1. Ishmael Miller headed the hosts in front before squandering the opportunity to extend the lead when he missed a first-half penalty.
Leeds made a swift response after the break when Ross McCormack equalised after 20 seconds of the restart and Stephen Warnock added a second with a wind-assisted free kick on 62 minutes.
Elsewhere, Ipswich Town came from two goals down to draw 2-2 at relegation-threatened Barnsley, while Charlton Athletic remain in the bottom three after a 2-0 setback at home to Birmingham City.
Bolton surrendered a two-goal lead in a 2-2 draw with Bournemouth, Blackpool played out a 1-1 draw with Nottingham Forest and Brighton and Hove Albion defeated lowly Doncaster Rovers 1-0.
Middlesbrough drew 2-2 with Blackburn and Huddersfield Town recovered from a heavy 5-1 defeat to Leeds with a 1-0 triumph over Wigan.