The 25-year-old joined the Vikings on a 12-month deal from North Queensland in the close season but suffered a ruptured cruciate knee ligament 10 minutes into his Super League debut against Salford in February.
That injury ruled him out of the rest of the season but he has impressed the club enough off the field to earn a new deal for 2013.
Widnes director of rugby Paul Cullen said: "Anthony's dedication to recover from injury and his conduct both around the club and the local community have been exemplary.
"His commitment to perform to the very best of his abilities and his desire to play for Widnes Vikings are as significant as his potential to be a star in 2013."
Watts, who can play scrum half, stand-off and hooker, said: "I'm really happy to remain at the Vikings.
"Despite only being here for six months or so, I've fallen in love with the club and its passionate supporters.
"I genuinely believe that Widnes Vikings will be a huge force within the next few years and I want to be a part of that."
