The 22-year-old striker was due to spend the season on Wearside, but his deal contained a break clause which allowed the move to be terminated early either by the player himself or the two clubs involved.
He said: "We had to decide relatively quickly and decide what was the best course of action for all parties.
"He is such a great boy, but it just hasn't clicked for him here and that's a shame not only for us but also for him.
"He needs to play games - he knows that - and he knows that we are trying to strengthen that area of the pitch as well.
"He'll go back to Watford and then take stock and see where he goes next."