He could take over from fellow countrymen Walter Mazzarri at the end of what the club's Italian owner, Gino Pozzo, feels has been a disappointing season.
Ranieri, who watched Watford lose 4-0 at Tottenham last Saturday, is eyeing a point-to-prove return following his shock dismissal by Leicester despite transforming them into Premier League champions last season.
Claudio Ranieri could return to management with Watford Claudio Ranieri watches Chelsea training Fri, April 7, 2017
Claudio Ranieri was snapped watching Chelsea training this week!
Play slideshow Chelsea FC via Getty Images 1 of 5
Claudio Ranieri dropped in to watch Chelsea train at Cobham this week
Walter Mazzarri has failed to grasp the English language
Ambitious club owner Gino Pozzo has been frustrated at Mazzarri's failure to grasp the English language and subsequent communication problems with players and staff.
Now he sees 65-year-old Ranieri – a friend of his father's – as the coach to take the unsung Hornets that extra mile into the unchartered territory he negotiated so successfully at Leicester.
The only obstacle is that following his experience at Leicester the principled Ranieri is reluctant to talk about the Watford job while Mazzarri still holds it.