A sublime free-kick from Watford’s Sonny Blu Lo-Everton in the 75th minute ultimately decided the game in what was a close encounter in North London at Wingate and Finchley.
Blues best spell came in a 20 minute period of control in the first-half after a threat from Watford in the opening stages.
And in a dramatic finale, deep into stoppage-time, Tate Campbell went agonisingly close to an equaliser and Watford almost scored a spectacular own goal.
But the hosts always carried a threat and goalkeeper Zach Jeacock was outstanding for Blues, making a series of fine saves and dealing with a barrage of wicked inswinging corners by the hosts.
He made two in quick succession early on before Blues, with Campbell pressed into duty at centre-half due to injuries, began to find some rhythm.
Their first real chance came Ryan Moore made a darting run down the right-wing and hit a superb cross on the run but it eluded Josh Andrews and was well knocked away by a Watford defender.
Blues began to find some joy by moving the ball and creating good situations down the left.
Ryan Burke came close to scoring when a fierce shot cannoned off the goalkeeper’s leg and Jude Bellingham fired the loose ball over the crossbar.
As the half progressed, Watford were pushed onto the back foot and Bellingham cleverly went past Imaad Sankoh on the edge of the area, tried to shape the ball just inside the post and as it bounced just in front of Dante Baptiste it made for an awkward but vital save.
In the latter stages of the first-half Watford gained ascendancy again and captain Ryan Cassidy ran onto a long ball and stuck his effort narrowly wide before Jeacock pulled off another great save to parry Blu Lo-Everton’s effort away.
The start of the second-half was very cagey. Both sides could not keep possession or really create a threat in the final third.
Blues appealed for a penalty after Kyle Hurst went over after trying to accelerate past George Langston before Watford nearly scored up the other end; Jeacock had to race from his line to tackle Dominic Hutchinson and the ball spun wickedly back into the air and behind him, thankfully Campbell slid the ball away superbly from Hutchinson at the last moment to deny him in front of goal.
Matters swung to the other goalmouth and Blues came very close when skipper Ryan Stirk played a ball over the defence to Hurst whose effort was blocked. From the resulting corner, an Andrews looping header seemed to catch the 'keeper by surprise and it bounced off the top of the crossbar.
From a long ball by Baptiste as Watford countered, they earned a free-kick a few yards to the left of the Blues area. Blu Lo-Everton struck the ball up and over the wall and into the corner, leaving Jeacock no chance.
Blues had minutes earlier made their first change, bringing on Lucas Powell for Nick Okoro. Powell went to left-back, Burke was pushed into midfield alongside Stirk and George Baker went wide right of the three behind Andrews.
Blues threw all they could at Watford and Baker had one attempt saved and crucially overran the ball when Campbell, pressed up front in the final stages, nudged him in on the right of the area.
In the fifth and sixth minutes of added-time, Blues came so, so close to an equaliser.
Hurst had a curling effort punched away before Jeacock came out to made himself big and block with his chest when Hutchinson was clean through. Then he launched a monster kick that caught out Watford's defence and dropped for Campbell, in on goal; but he steered his shot just wide of the post.
If Watford breathed a massive sigh of relief at that then it was heart in the mouth stuff moments later when a hurried clearance off the toes of Andrews as Blues piled on the pressure almost flew into the top corner.
Blues: Jeacock, Moore, Campbell, Forrest, Burke, Stirk, Baker, Okoro (Powell 71), Bellingham, Andrews, Hurst.
Subs not used: Bradley-Hurst, Traore, Craig, Hilton.