The Uruguayan, who has played 68 times for the Hornets since signing from Napoli three seasons ago, will see his deal run until June 2019.
Britos, 32, made 10 Premier League appearances last season after missing three months with injury.
Watford confirmed the club's retained list on Thursday, with U23 defenders Brandon Mason and Charlie Rowan both to leave following the end of their contracts.
Two players from the U18 squad, Yazid Kaikay and Reece Stray, also depart at the conclusion of their scholarships.
The Hornets had already made a summer addition to the squad with the signing of England U19 defender Ben Wilmot from Stevenage.
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