Arsenal and Liverpool lose to hand Man City Premier League lead
Manchester City were the big winners of the day as the defending champions remain two points clear at the top of the table with six games remaining.
Arsenal had taken 31 from a possible 33 Premier League points in 2024 prior to Villa's visit, but former Gunners boss Unai Emery derailed his old club's charge towards the title.
Mikel Arteta's men were left to rue not making the most of their first half superiority as ex-Arsenal goalkeeper Emi Martinez produced a brilliant stop to deny Leandro Trossard the opener.
However, Villa had shown their teeth as Watkins and Youri Tielemans struck the woodwork before snatching all three points.
Bailey ghosted in to meet Lucas Digne's low cross six minutes from time.
And Watkins then moved to within one of Erling Haaland's 20 in the race for the Golden Boot with a sumptuous finish on a counter-attack from an Arsenal corner.
Villa's victory puts them in pole position for a place in next season's Champions League as they move three points clear of fifth-placed Tottenham.
Liverpool running out of steam
It was a similar story for Liverpool at Anfield as Jurgen Klopp's men appear to have run out of steam at the business end of the campaign.
The Reds have now won just three of their last eight games in all competitions as a glorious goodbye for Klopp is at risk of fizzling out.
Liverpool had not lost in any competition at Anfield for 14 months prior to Atalanta's 3-0 rout in the Europa League on Thursday and suffered their first Premier League defeat at home since October 2022.
Eberechi Eze gave Palace a deserved lead on 14 minutes and only an incredible goal-line clearance by Andy Robertson denied Jean-Philippe Mateta a second.
Liverpool were much improved after the break but were guilty of missing a number of big chances.
Darwin Nunez fired straight at Dean Henderson, while Curtis Jones, Mohamed Salah and Diogo Jota should all have salvaged at least a point.
"I am not dumb," said Klopp on the ramifications for the title race.
"The answer is pretty easy: if we play like we did in the first half, why should we win the league? If you play like in the second half, we can win football games.
"So if we can win football games then we will see how many we can win. We have to be around when the other guys now struggle, if they struggle."
However, the advantage has swung firmly into City's favour as they look to become the first side to ever win four consecutive English top-flight titles.
West Ham's hopes of a fourth consecutive season in European competition were hit by a 2-0 home defeat to Fulham.
Andreas Pereira scored both goals for the Cottagers, who move up to 12th.