The 19-year-old, who has played 70 first-team games for the Hornets, will appeal against the decision, but the club are shocked by the news.
Iain Moody, head of football operations, told Watford's official website: "This is terrible news for Al and a big shock to everyone at Watford FC.
"We're very sad and disappointed that he's not been granted leave to remain in the UK.
"The Home Office will shortly initiate moves to immediately remove him from the country and as such we've instructed our legal advisors to begin preparing an appeal to this decision.
"This is a significant setback for Al and his family but we'll continue to fight this case and have full confidence that common sense and justice will prevail and that Al will be allowed to continue his life in this country."