Watzke is incensed that City are allowed to sign 350million stadium and shirt sponsorship deals with a company (Etihad) connected to their owners.
Such 'back-door' funding is anathema to Dortmund, who have strict financial controls and are 51% owned by the club's supporters.
The two clubs meet at the Etihad Stadium on Wednesday night with Watzke insisting that a big-spending owner like Sheik Mansour would not be welcome in Dortmund.
"UEFA must find the thin line between sponsorship and excessive back-door funding - they must show strength to expel big clubs,' said Watzke.
"No tycoon should be allowed to pump crazy money into a club with sponsorship from five companies he controls. If that happens, financial fair play will fail.
"I would not even welcome him. What if the sheikh, as shown by Malaga, lost interest?"
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