Watford saw a bid for ex-Malaga midfielder Ignacio Camacho turned down by Wolfsburg in the January transfer window.
German magazine Kicker reported the move, which makes sense because Camacho was a star of the Malaga side that Watford boss Javi Gracia guided to eighth and ninth-
placed finishes in La Liga.
However, Wolfsburg were not willing to do a deal for a player they signed for £9million last summer.
'Ignacio is a sought-after player, but we have just agreed on a long-term contract and are very happy to have him,' said Wolfsburg sporting director Olaf Rebbe.
Camacho signed a four-year contract with the Bundesliga club on joining in July and was made captain of the club in September.
However, the 27-year-old picked up an ankle injury in October and underwent an operation, but will be back playing again next month.