UFC officials announced the match-up on Thursday.
UFC 163 takes place August 3, 2013 at the HSBC Arena in Rio De Janeiro, Brazil. Featherweight champion Jose Aldo defends his belt against top lightweight contender Anthony Pettis in the night's main event.
Leites (20-4) returns to the Octagon for the first time since dropping two straight decisions to earn his Zuffa release in late-2009. Since that time, Leites, who once notoriously lasted five rounds against UFC middleweight champion Anderson Silva, has compiled a 6-1 record fighting in regional promotions, finishing four of those contests via submission.
Watson (16-5), meanwhile, hopes to capitalize on the momentum of his electric second-round TKO victory over Stanislav Nedkov, for which the Englishman earned duel ‘Fight of the Night' and ‘Knockout of the Night' bonuses.
The 30-year-old Watson has won four out of his last five contests, his only loss arriving via split decision at the hands of Brad Tavares in his UFC debut.