Watson gave England an early lead in the match with a try, but Australia fought back in a feisty second half and eventually saw out a 15-7 victory.
England had two players sent to the sin bin in the second seven minutes, while captain Tom Mitchell also limped off the field, but Watson offered no excuses for the loss that saw Australia claim top spot in Group D.
"It was [disappointing], to be fair. We didn't put out the performance we wanted really, but I guess what's important is that we're through to the quarter-finals," he told Sports Mole.
"That couldn't really help us, the two yellow cards, but to be honest the game is won and lost and it's up to us really. We've got to take that on the chin. We can't really blame anything on the ref or anything like that, so it was just unfortunate and we'll look to get better tomorrow.
"I think whenever England play Australia or any of the top teams it is always a feisty game so I don't really think it was necessarily different to any other."
England will now face Samoa in the medal quarter-finals, while Australia take on Wales.