Barca general manager Pep Segura had claimed that the Catalan club were close to completing a deal for both Dembele and Liverpool's Philippe Coutinho, using the €222 million they received from Paris Saint-Germain in the sale of Neymar to fund the deal.
And, while Jurgen Klopp's side remain adamant that the Brazil international is not for sale at any price, Dortmund have also moved to dismiss the reports and in the process mocked Barca for being beaten 5-1 by Real Madrid in this week's Supercopa .
"Barcelona has not moved a millimetre closer to finishing the Dembele transfer. What he [Segura] talks about, I cannot explain," Watzke told Kicker .
"The only explanation is that Real Madrid made Barcelona dizzy during the Supercopa matches."
Barcelona were beaten 3-1 on Sunday and then 2-0 on Wednesday by Clasico rivals Real Madrid, with Marco Asensio and Karim Benzema scoring the goals in the second leg to hand Zinedine Zidane's club the trophy.
It was after that game which Segura made the comments, telling Spanish radio station RAC1 : "Coutinho and Dembele are both close. We are hopeful that they will end up wearing the Barca shirt."
Dortmund have turned down an offer from Barcelona for the French forward, before suspending the 20-year-old indefinitely after he missed training without permission.