The Huber timepiece, which sold to an anonymous bidder, shows a swastika and has the initials AH engraved on it.
Jewish leaders condemned the auction ahead of the sale at Alexander Historical Auctions in Maryland.
However the auction house - which has sold Nazi memorabilia in the past - told German media its aim was to preserve history.
Adolf Hitler led Nazi Germany between 1933 and 1945, orchestrating the systematic murder of as many as 11 million people - six million of whom were killed because they were Jewish.
The product catalogue for the watch says it was possibly given as a birthday present to the fascist leader in 1933, the year he became Chancellor of Germany.
An assessment by the auction house reads that the watch was taken as a souvenir when some 30 French soldiers stormed the Berghof, Hitler's mountain retreat in May, 1945.
It is then thought the timepiece was resold and passed down through several generations until now.
Other articles in the auction included a dress that belonged to Hitler's wife, Eva Braun, autographed pictures of Nazi officials and a yellow cloth Star of David imprinted with the word "Jude", which is German for Jew. During the holocaust, the Nazis forced Jewish people to wear the yellow identifiers as armbands or badges, with the intention to isolate and harass them.
An open letter signed by 34 Jewish leaders described the sale as "abhorrent" and called on the Nazi items to be pulled from the auction.
Rabbi Menachem Margolin, chairman of the European Jewish Association said the transaction gave "succour to those who idealise what the Nazi party stood for".
"Whilst it is obvious that the lessons of history need to be learned - and legitimate Nazi artefacts do belong in museums or places of higher learning - the items that you are selling clearly do not," he wrote.
Talking to German press before the sale, Alexander Historical Auctions said that its aim was to preserve history, and that most sold items are kept in private collections or donated to Holocaust museums.
"Whether good or bad history, it must be preserved," Senior Vice President Mindy Greenstein told Deutsche Welle. "If you destroy history, there is no proof that it happened".
Documents supplied by the auction house state that it cannot provide proof that Hitler actually wore the watch. But an appraisal by an independent specialist concluded that it "in all likelihood" belonged to him.
Despite the watch fetching over $1m it fell short of the auction house's $2m to $4m estimate, Deutsche Welle reported.