The Hornets had been in talks to extend the contract of Slavisa Jokanovic who had guided the club back up into the Barclays Premier League.
However, after those negotiations broke down over the salary demands of the Serbian, Watford moved to secure the serviced of Sanchez Flores.
Press Association Sport understands the club are now in a position to make a formal announcement during Friday afternoon to confirm the Spaniard's appointment.
Sanchez Flores will bring an impressive CV to England, the 50-year-old having guided Atletico to the Europa League title in 2010, beating Fulham in the final, as well as coaching in Portugal at Benfica and more recently with Al Ain in the United Arab Emirates.
Jokanovic, the former Chelsea defender, had been appointed as Watford's fourth coach of the season in October, and would go on to guide the club back into the Premier League as runners-up to Bournemouth.
Watford, though, were unable to reach an agreement over terms of a new deal, which would not only have broken the pay structure of the Vicarage Road club, but also pushed the Hornets out of line with the basic earnings of other more experienced managers in the top flight.
The Hertfordshire club have already made moves to strengthen the squad, with the free transfer signing of Austrian defender Sebastian Prodl and Lithuanian goalkeeper Giedrius Arlauskis
Source : PA
Source: PA