The Hornets are pushing for automatic promotion to the Premier League and trail second-place Hull by just one point going into the final game of the season.
However, they have borrowed 14 players from other clubs this season, including 10 from Udinese and two from Granada - both of which, like Watford, are owned by the Pozzo family - and that has led to criticism from some quarters.
The loan signings have been instrumental in transforming the team from the outfit which finished mid-table last term to a side pushing for automatic promotion this time around - but Clark, whose Birmingham City side sit 10th in the second tier, credited Watford for using their resources and current Football League rules to their advantage.
"They've brought quality players in and fair play to Watford," said the former Huddersfield boss.
"The problem lies with the Football League - it's their rules and they have to decide which way is it, so it's the same rules for everybody, whether its players coming from abroad or a loan from another English club.
"Watford have seen the loophole and they've used it. I don't blame them at all. The same family owns three different clubs in three different countries and they've taken players from each club and they've been exciting players.
"They had a small budget last year and had to bring young players in but [Watford manager] Gianfranco Zola has gone in and they've used what he's got. They've been really, really exciting."
Neil Warnock - who knows just what it takes to win promotion from the second tier after guiding Notts County, Sheffield United and QPR to the top flight - believes the Watford signings have added to the excitement of the tightly contested division and picked out Matìj Vydra for special praise.
"Yes they've manipulated the rules but Vydra is my man of the season," said Warnock. "He can play at the top level.
"It's a bit of a shock for these lads to come over and play Saturday, Tuesday, Saturday, Tuesday but once they get used to it they've been really exciting. I'd pay to go and watch them play. I like the way they play and move."
Sky Sports Football League expert Peter Beagrie hailed the role Zola has had to play in uniting Watford's international squad and using his own experience of adapting to the English game to get the best out of the club's imports.
However, he also pointed out, despite the influx of foreign stars, Birmingham-born Troy Deeney, who has been at the club since 2010, has also been instrumental in their success during the 2012/13 campaign, netting 19 goals.
"Look at what Troy Deeney has offered," Beagrie said.
"He's a stereotypical centre forward who plays down the middle, but he provides the platform for them to build off and allows everybody else to [play].
"He has the physicality, he's matured in his game and, when Vydra dried up to a degree later in the season, he's the one who's produced."
Check out the video above to see the panel discuss the final day of the Championship season and what it means to clubs at both ends of the table.