Watson, the Caribbean Football Union's vice-president and a member of FIFA's Audit and Compliance Committee, was arrested in the Cayman Islands on suspicion of money laundering and corruption on September 6.
The official denies all allegations made against him, which are said to be related to an investigation into a hospital swipe-card billing system.
In a statement released on Tuesday, Domenico Scala, chairman of FIFA's Audit and Compliance Committee, said that while a "presumption of innocence" still applies to Watson and no link between the allegations and his role at the global governing body had yet been established, he has decided to temporarily revoke Watson's position on the panel while the probe is ongoing.
"After a preliminary clarification of the facts of the case and the allegations of the Cayman Island investigating authorities against Canover Watson, no connection with football and/or his role at association level has been established at this stage," said Scala.
"The investigation continues. The chairman has decided to temporarily relieve until further notice Canover Watson, to whom the presumption of innocence applies, of his duties on the FIFA Audit and Compliance Committee.
"This should not be regarded as routine procedure, because cases like this or of this nature must always be assessed on their individual merits."
