The hosts went into this contest on the back of four wins on the bounce, but saw their momentum halted by Troy Deeney's emphatic first-half penalty and a late Gerard Deulofeu goal.

Manuel Pellegrini's men were left to rue a number of near-misses as their search for a goal proved fruitless, Michail Antonio coming closest as he twice hit the woodwork in the second half. 

It represents the Hammers' first loss since a 4-0 drubbing at the hands of Manchester City last month, leaving them 12th in the table.

West Ham threatened first and Christian Kabasele made a vital sliding interception to prevent Antonio's dangerous delivery from reaching Javier Hernandez, while Fabian Balbuena was pressed into defensive action at the other end to thwart Deulofeu.

The Hornets wasted a glorious chance to break the deadlock in the 24th minute as Jose Holebas miscontrolled when he had the freedom of the penalty area after West Ham's plan to play him offside backfired. 

It did not take long for the visitors to shrug off that disappointment, Balbuena's clumsy challenge on Roberto Pereyra allowing Deeney to open the scoring with a powerful finish from the spot.

West Ham twice came close to an equaliser either side of the break, Ben Foster making a smart stop to keep out Hernandez's volley and then Antonio's header hitting the post. 

Andy Carroll's introduction in the place of Mark Noble underlined West Ham's attacking intent and the hosts continued to press, Hernandez fluffing his lines to shoot tamely at Foster from just eight yards out. 

It took a fine save from Lukasz Fabianski to push Abdoulaye Doucoure's stinging drive over the crossbar in the 71st minute as Watford sought to put the game to bed. 

Doucoure then made a timely intervention to deny the lively Hernandez just as the Mexican was lining up the target. 

There were chances for both sides late on with Deeney shooting straight at Fabianski and Foster saving from Antonio before watching his follow-up effort hit the bar, but Deulofeu had the final say with a cool finish to settle matters after being played in by Pereyra.

Pellegrini will take his side to a resurgent Southampton on Friday (AEDT), while Watford will host Chelsea on Boxing Day.