New Hornets boss Quique Flores has been busy adding to his squad ahead of their first season back in the Premier League since 2006 and 10 new recruits have already arrived at Vicarage Road.
Diamanti, 32, spent one season with West Ham United during the 2009/10 campaign and scored eight times to help preserve the club’s place in the Premier League.
He also scored the winning penalty for Italy in their quarter-final shoot-out victory over England at Euro 2012.
Diamanti, who spent the second half of last season on loan with Fiorentina, has two years left on his contract with Guangzhou.
Meanwhile, Sky sources understand Watford are also poised to sign goalkeeper Rafael Romo from Udinese on a short-term deal.
The Venezuela international, 25, will provide cover for current No 1 Heurelho Gomes