The 41-year-old was appointed Everton boss in May but Watford remained unhappy at what they felt was the Merseyside club’s illegal approach for the Portuguese earlier in the season.
The Toffees made Silva their number one target to replace Ronald Koeman following the Dutchman’s dismissal in October 2017.
Silva had only been in charge at Watford for a matter of months, having moved from Hull over the summer.
He had made a fine start to life at Vicarage Road, with the club climbing as high as fourth after a 2-1 win over Arsenal in mid-October.
The Hornets were understandably reluctant to let their boss leave and rejected Everton’s approach, insisting Silva was not going anywhere.
After admitting defeat in their pursuit of Silva Everton ultimately appointed former England boss Sam Allardyce as their new manager on an 18-month contract.
However, Watford remained angry at Everton for unsettling Silva and blamed their subsequent loss of form on the Toffees.
Silva was eventually sacked in January 2018 after a run of just one win in 11 games saw the club drop to within five points of the relegation zone.
Everton subsequently appointed Silva as manager in May on a three-year deal after Allardyce was dismissed at the end of the season.
Watford felt Silva’s belated move to Goodison Park strengthened their case against Everton and made an official complaint to the Premier League.
The league then set up an independent inquiry into whether Everton had broken any rules.
With all attempts at mediation failing, the Premier League were ready to launch a full QC-lead inquiry into the issue before an agreement was eventually reached.
“Everton and Watford can confirm that they have reached an amicable agreement regarding the appointment of Marco Silva as Everton manager last year,” read a statement on both club’s websites.
“Both Everton and Watford are keen to move on from this matter.”
Watford appointed Javi Gracia as Silva’s successor, with the Spaniard guiding the club to a 14th-place finish last season.
The Hornets have enjoyed a fine campaign this time around and are currently eighth in the Premier League, five points ahead of Silva’s Everton.