Xisco Munoz's side took the points thanks to Tom Lees's early own goal at Vicarage Road.
But Wednesday was furious with the goal as the offside flag went up when Lees tried to beat Isaac Success to Ismaila Sarr's cross.
The officials ruled that Success had not been interfering with play and Watford held on to cement its grip on second place in the Championship.
With the top two promoted automatically, Watford is on course for an immediate return to the Premier League after last season's relegation.
It has won six in a row and sit nine points clear of third placed Swansea City, which has a game in hand but slumped to a last-gasp 1-0 defeat at Birmingham City.
It was a bitter blow for second bottom Wednesday, which is six points from safety and was without manager Darren Moore after he tested positive for COVID-19.
Brad Potts' stoppage-time strike saw Preston North End hold leader Norwich City to a 1-1 draw at Deepdale.
Emi Buendia had put Norwich ahead with a superb long-range effort but Potts struck in the fifth minute of stoppage-time for managerless Preston.
Norwich is six points clear of Watford as it progresses towards a seemingly inevitable promotion.
Bournemouth boosted its play-off hopes with a 3-1 win over its manager Jonathan Woodgate's former club Middlesbrough.
Cardiff City's chances of breaking into the top six suffered a blow as it went down 1-0 at home to Nottingham Forest, which ended a six-match winless run thanks to James Garner's first-half strike.
Third bottom Rotherham United lost 1-0 at Millwall after Michael Smith saw his late penalty saved by Lions keeper Bartosz Bialkowski.
Jed Wallace's blistering strike won it for Millwall after Rotherham captain Richard Wood was sent off.
Derby County took a big step towards safety as it ended a seven-game winless run with a 2-0 victory over Luton Town, while Queens Park Rangers beat struggling Coventry City 3-0.
Bottom of the table Wycombe Wanderers won for only the seventh time this season, with Fred Onyedinma's goal enough to see off Blackburn Rovers 1-0 at Adams Park.
Nigel Pearson is still awaiting his first home win as Bristol City manager after goals in each half from Nick Powell and Steven Fletcher gave Stoke City a 2-0 win at Ashton Gate.
In the other late game, Barnsley and Reading couldn't be separated, playing out a 1-1 draw in their match.