"Udinese Calcio is pleased to announce the permanent signing of Gerard Deulofeu from Watford FC," Udinese said in a statement.
"(Deulofeu) is now signing a contract that will bind him to the club until June 30, 2024."
Both Championship side Watford and Udinese belong to the Pozzo family.
The 26-year-old former Barcelona and Everton player has made 12 appearances for Udinese, scoring one goal.