The 32-year-old Austrian made 85 appearances for the Hornets but has struggled with injuries over the past couple of seasons.
“It was always a dream to play in the Premier League and Watford gave me this opportunity,” Prodl told the club website.
“I will always reflect very positively on my time here. When I signed four and a half years ago, my gut told me it was going to be a very good move and everything has proved this to be right.
“I am just grateful to have Watford on my CV, I am moving on now but I am glad I have been here.
“Being voted player of the season as a defender was a special honour. Big thanks to all the supporters for always believing in me, even when I wasn’t playing.
“I will always come back and watch the guys play at Vicarage Road and Watford will always have a place in my heart.”