Watford created the majority of chances but required referee John Brooks to fail to award a stonewall Canaries penalty late on.
The Canaries are now four points clear of second-place Swansea, with Watford two points further behind in fifth.
Xisco, Watford's fifth manager since the start of last season and their 14th in the last eight years, made three changes to the side that lost 2-0 at Huddersfield the week before in what proved to be Vladimir Ivic's final game in charge.
Captain Troy Deeney, who had been dropped for disciplinary reasons the player insisted had been a total mystery to him, was instantly reinstated after his new manager had called him a "legend" earlier in the week.
Max Aarons launched the game's first shot at Watford keeper Ben Foster as Norwich bossed the early exchanges in terms of possession.
Norwich left Sarr free on the right in the 13th minute and were relieved when Gray lashed wide with the goal at his mercy after the winger's cross reared up off a defender.
Watford managed to soak up the pressure however and were rewarded by taking the lead through a 39th-minute counter attack. Norwich allowed Ken Sema's delivery from the left to find Sarr at the back post, who tapped in before Jacob Sorensen, who had switched off, could intervene.
Norwich were rattled and were fortunate Gray's finishing let him down again just before the break when a cross bounced to him off Deeney but once again he could not hit the target from close range.
Sema set up Sarr again for a shot that was deflected behind before Canaries boss Daniel Farke made a triple substitution with just over 20 minutes remaining.
Buendia fired a rare Norwich shot at Foster before referee Brooks failed to spot a clear penalty when Watford substitute Adam Masina tripped Teemu Pukki in the act of shooting seven yards in front of goal.
Norwich threw men forward in search of an equaliser but the Hornets held on.