A military jury at a court martial in Calgary also acquitted Watts, 44, of two counts of breach of duty.
But the five jurors convicted him of unlawfully causing bodily harm and negligent performance of military duty.
Watts was the commanding officer the day 24-year-old Cpl. Josh Baker died after a claymore explosive packed with 700 steel balls hit a Canadian Forces platoon at a training range north of Kandahar city. Four other soldiers were wounded.
Watts's lawyer said the officer feels great anguish about the loss of one of his men.
"I feel very strongly in the man's innocence and I feel ... badly for him and his family to be put in this position of being found guilty when he doesn't think he did anything wrong," said defence lawyer Balfour Der.
But Der said Watts still wants to be in the army.
"He is a soldier — he's a good soldier — he wants to be there, so we're going to fight like hell to keep him there," said Der, adding he will be arguing for minimum repercussions to his service record and against jail time.
"On the one hand he's relieved that it's over, at least this part of it. He's deeply disappointed at being convicted of anything. You know the whole thing is really tough on him and his family.
'Justice has been served'
Military prosecutor Maj. Tony Tamburro said it's too early to discuss sentencing options, as he wants to make his sentencing arguments in court.
"The panel has made their finding and I have to respect the finding of the panel," said Tamburro.
"As a prosecutor there is no concept of winning or losing for me, my job is to put the evidence in front of the court and to let the court make its decision, and that's been done, so justice has been served."
Tamburro said he will be talking to Baker's family to explain to them what happened.
On the day of the accident, the range was divided into four training sections. The first two tests of the anti-personnel mine went off without a hitch. But when the second firing occurred, the ball bearings fired backward, hitting Baker and the four others.
Videos of the accident show several soldiers, including Watts, standing around watching the tests. They were not inside armoured vehicles or standing behind them for cover, as set out in Canadian Forces safety guidelines.
The Crown had argued that Watts, as the platoon commander, turned a blind eye to safety standards and abdicated his duty as a leader during the exercise.
2 other officers charged
"I think what this case does ... is say that if you have your subordinates run a range you remain accountable for the way they run it," said Tamburro.
"If commanders weren't responsible for the way ranges were run, that would cause people not to want to join the Forces. I wouldn't want to go on a range if the people running it weren't responsible for what happened to me."
Defence had argued that Watts had no training with claymore explosives, so he handed over safety responsibilities to his second-in-command, Warrant Officer Paul Ravensdale, who was an expert on the weapon.
A panel of five senior ranking military officers had been deliberating his fate since Saturday night.
The maximum punishment for unlawfully causing bodily harm is 10 years in prison and dismissal with disgrace for negligent performance of military duty.
Watts's commanding officer, Maj. Christopher Lunney, pleaded guilty to negligent performance of duty in September and was demoted to captain and given a severe reprimand.
Another court martial is pending against Ravensdale sometime in the new year.
A sentencing hearing headed by Cmdr. Paul Lamont, who is the judge presiding over the court martial, is to begin Jan. 14.