After trailing 20-4 approaching the final quarter, team-mate Jake Trueman thought he had completed a remarkable comeback with a 77th-minute drop-goal to put the visitors 21-20 ahead on Thursday night.
But referee Ben Thaler ruled out the effort after deeming prop Watts had blocked Leeds player Brad Dwyer as he tried to get to Trueman.
Instead, the contest went to Golden Point extra-time and, ironically, Dwyer’s drop-goal saw bottom-placed Rhinos pick up their first win in six games.
But Watts, the 28-year-old who was called up by England earlier in the week, insisted: “That penalty is the harshest I’ve seen.
“I’ve not moved off the mark, I’ve stayed still. I’ve slightly turned but he’s run into my line.
“We have the ball and it should be in the attackers’ favour. If he wants, he has to run around me. He can’t run through me. If that’s the case, all people will do is run straight into the person playing the ball. Then what happens?
“It will be chaos. The game is being made so complicated. They need to look more into it before making rule changes.”
The former Hull FC star, who scored his third try in six games in the first half, praised Leeds and said: “We knew it’d be tough.
“Leeds are in games all the way through and they’ve just proved it again, playing right to the end.
“But we’re just shooting ourselves in the foot and giving ourselves too much to do. That’s the most upsetting thing.
“In that second half they couldn’t live with us down the middle. We were blowing them away. But we should have started like that in the first.
“It’s taking us to be right behind in a tough game to get going.”
It was back-to-back defeats for Castleford after a heavy loss at home to Saints and next up they host Wigan Warriors on Friday.