Friday's victory also guaranteed Villa a place in next year's Champions League.
The win just five days before Villa face Freiburg in the final of the Europa League means Unai Emery's men ensured a top-five finish in the Premier League.
Liverpool are three points behind in fifth and still sweating over a Champions League place for next year.
Liverpool had the better of the opening exchanges with Cody Gakpo seeing a goal ruled out for offside and Emiliano Martinez pushing away a swerving long-range effort from Dominik Szoboszlai.
However, Villa found their composure as the half went on and took the lead three minutes before halftime. Morgan Rogers placed a perfect right-foot shot beyond the reach of Giorgi Mamardashvili after a well-worked corner kick.
Virgil van Dijk's header eight minutes into the second half brought Liverpool level, but Villa started to dominate as the game opened up.
Watkins had a goal chalked off for offside but made up for it just a few minutes later when he took advantage of a slip by Szoboszlai that set Villa free on the counterattack.
He added a third in the 73rd when he side-footed home from point-blank range after Mamardashvili made two excellent stops.
It was Watkins' sixth goal in his last seven league games and he was a constant threat to a Liverpool rearguard that looked shaky every time Villa stormed forward.
Emiliano BuendÃa had a long-range effort smack the bar - Rio Ngumoha did the same for Liverpool at the other end - before John McGinn added the fourth two minutes from time with a superbly placed shot into the far corner.
"It's a great performance and a great way to end the season at Villa Park," captain John McGinn told broadcaster Sky Sports.
"We've just made this club a Champions League club again, and it allows us to be excited and enjoy the game on Wednesday.
"We've got a chance to get some silverware but the fact we're in the Champions League is an unbelievable achievement."
Van Dijk made it 4-2 in stoppage time with a header but it was scant consolation for a Liverpool team that looked tired and sluggish under Arne Slot.
"We've conceded far too many games, but we also haven't scored enough goals," said Slot, who admitted his team lacked backbone after going behind in the second half.
"(After) the 2-1 we crumbled, we struggled. In the end made it 4-2, so they did not give up, but we struggled to control their pace, intensity and quality."
The Reds' last game of the season is at home to Brentford on May 24, while Villa take on Manchester City at Etihad Stadium on the same day.
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