England ended Michael Hussey's fine innings as they pressed for a win here at Edgbaston that would put them 2-0 up in the Ashes series with two to play.
Australia, at lunch on Monday's final day of the third Test, were 172 for four in their second innings - effectively 59 for four - with England still to bat again.
Left-hander Hussey fell to Stuart Broad's 12th ball of the innings - and first from around the wicket - when he was caught behind by wicket-keeper Matthew Prior for 64 after two-and-a-half hours of game resistance.
His exit left Australia 161 for four.
Ashes holders Australia resumed on 88 for two, still 25 runs behind.
England had given themselves a shot at victory on Sunday with Graham Onions dismissing Simon Katich and Graeme Swann's classic off-break bowling Australia captain and star batsman Ricky Ponting for five.
Watson, recalled in place of dropped opener Phillip Hughes, was unbeaten on 34 after top-scoring in Australia's first innings with 62, while Hussey was 18 not out.
Andrew Flintoff, the bowling hero of England's 115-run second Test win at Lord's and who'd already starred with the bat in this match, beat Hussey on the outside edge before the batsman responded by driving the next delivery through the covers.
Hussey's single off Flintoff brought the scores level and his cut four off Swann took Australia into the lead.
Watson, in his debut Test as an opener, was hit flush on the left elbow after turning his head away from a Flintoff bouncer.
But he kept going and drove a Swann full-toss for his ninth four as he completed a fifty off 113 balls.
Flintoff, after a stint of seven overs for 17 runs, was replaced by fellow Lancashire quick Anderson, who took five wickets in Australia's first innings.
And with sixth ball Friday, Anderson had Watson edging to wicket-keeper Matthew Prior to end a three-hour innings and a stand of 85 with Hussey.
Australia were now 137 for three in a match where Saturday's play was washed out as were Thursday's first two sessions.
New batsman Clarke could have been out first ball when, trying to withdraw the bat against Anderson, he got an inadvertent boundary when the ball might just as easily have deflected into his stumps.
But it was Broad, whose bowling has been much criticised this series, who ended a Hussey innings where 52 of his runs came in boundaries.
England were struggling at 168 for five in reply to Australia's first innings 263 before Flintoff revived their innings with 74 off just 79 balls.
Together with Prior and Broad he shared valuable and rapid partnerships of 89 and 52 respectively, with Broad going on to make 55 as England built a first innings lead of 113.
|Australia 1st Innings||263||S Watson 62, J Anderson 5-80, G Onions 4-58|
|England 1st Innings||376||A Flintoff 74, A Strauss 69, S Broad 55, I Bell 53||B Hilfenhaus 4-109|
|Australia 2nd Innings||overnight: 88-2|
|S. Watson||c Prior b Anderson||53|
|S. Katich||c Prior b Onions||26|
|R. Ponting||b Swann||5|
|M. Hussey||c Prior b Broad||64|
|M. Clarke||not out||12|
|M. North||not out||4|
|Extras||b4, lb2, w1, nb1||8|
|Total||for 4 wkts, 57 overs, 238 mins||172|
|Fall of wkts||1-47, 2-52, 3-137, 4-161|
|Anderson 15-6-36-1 (1nb), Flintoff 11-0-28-0, Onions 11-2-40-1 (1w), Swann 16-4-52-1, Broad 4-1-10-1|
|Match position||Australia lead England by 59 runs|
Source: AFP Global Edition