Bayern paid Dortmund 37 million euros ($50m) for Germany star Mario Goetze last season and Poland striker Robert Lewandowski is set to follow in May.
Dortmund won consecutive Bundesliga titles in 2010-11 and 2011-12, culminating in Borussia’s 5-2 drubbing of Bayern in the German Cup final in May 2012.
Watzke believes it was that result which spurned Bayern into poaching Dortmund’s stars after Munich had twice missed out to Borussia in the league.
“Bayern wanted to destroy us,” Watzke told German daily Bild with third-placed Dortmund currently 17 points behind leaders Bayern in the table.
“Not in the sense that they wanted to break us as people, because they don’t like us, but because they wanted to switch us off permanently as a direct competitor.
“They have helped themselves to our players, so we wouldn’t be a danger to them again.
“It was all done legitimately and we have to live with that.
“When we beat Bayern 5-2 in the German Cup final, I saw it in the faces of Munich’s top figures. Bayern then hit back.”
The Bavarian giants became the first German team to win the treble of European, league and cup titles last season, beating Dortmund 2-1 in the Champions League final.
“If they offer players twice as much money, we have no chance,” said Watzke.
“There is now no other league which is dominated by a single club like the Bundesliga.”
Dortmund on Friday completed the signing of promising Serbia attacking midfielder Milos Jojic from Partizan Belgrade until June 2018.
The 21-year-old joins for around 2.2 million euros ($3m) and scored on his Serbia debut last October.
Watzke has said more signings will follow at the end of the season and there will be a slight shift in their transfer policy.
“We will be buying in the summer. That means previously we have only spent what we have earned on transfers,” said Watzke.
“Now we are going to invest, and not with small sums.
“We definitely won’t go into debt, we will stay on our course, but our goal remains to be the second power in German football.”
With Lewandowski leaving on a free transfer for Bayern, Dortmund are also reported to be set to sign Hertha Berlin’s Colombia striker Adrian Ramos for the 2014-15 season.
The 28-year-old has told Hertha that he wants to leave in May, although his contract runs until June 2015.