On a day when previous leader Chelsea faltered, City displayed total dominance, showing off the kind of fluid passing game that helped Guardiola's team win three of the last four league titles.
Bernardo Silva scored twice after Raheem Sterling's early opener as City proved once again that it can do perfectly fine without a recognised striker in the lineup. It was a fifth straight league win for City, which is one point ahead of Liverpool and two in front of Chelsea after 15 rounds.
"It's always better to be top of the league than second, third or fourth, but it's still early," Silva said.
West Ham shook up the title race by beating Chelsea 3-2 at home in the early game, Liverpool then needed an injury-time goal from Divock Origi to earn a 1-0 victory at Wolverhampton that put Jurgen Klopp's team on top for a few hours and, in a mid-table clash, Neal Maupay's goal in the eighth minute of injury time rescued a 1-1 draw for Brighton at Southampton.
City, though, was in front from the start in the late kickoff.
Sterling scored the opener in the fourth minute as City capitalised on a loose pass and Phil Foden crossed into the center for Sterling to head home unmarked. Silva then doubled the lead in the 31st by weaving past two defenders before slotting the ball past goalkeeper Daniel Bachmann.
City completely dominated the first half, with 81 per cent possession, and could have added more goals before Silva got the third with a clever curled effort into the top corner in the 63rd.
Watford pulled one back through Cucho Hernandez, who followed up his own shot after it rebounded off a post, to deny Pep Guardiola's side a ninth clean sheet of the season.
