The 29-year-old striker's deal with the Hornets had a £5.5m release clause built in and was due to expire next summer, but he will now be able to sign for a new club as a free agent.
Welbeck has scored three goals in 20 appearances for Watford since joining on a free transfer last year.
He scored a spectacular bicycle kick goal against Norwich and netted against former club Arsenal on the final day of last season but couldn't help the Club escape relegation from the league last season.
Welbeck scored 44 goals and registered 20 assists in 224 Premier League appearances since his debut in 2008.
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