Having joined up with Steve Beaglehole's squad last month, Ryan, 20, has featured in all four of City's Barclays Under-21 Premier League matches so far this season, impressing both in central midfield and at right-back.
A former Wigan Athletic trainee, Watson has also spent time on loan with Sky Bet League 2 outfit Accrington Stanley, where he made his professional debut 12 months ago against Morecambe in the Johnstone's Paint Trophy.
He will continue to form part of Steve Beaglehole's Development Squad during the 2013/14 season, as the young Foxes continue to test themselves against some of the country's elite young talent in the Barclays Under-21 Premier League.