Watson said his party should not “legitimise” the system, which has allowed the former prime minister to nominate almost 50 of his associates for knighthoods and other rewards, until reforms are made.
He suggested Labour should not nominate new peers without a commitment that the list proposed by Cameron would be dropped.
Cameron is on holiday in Corsica while the furore around his list rumbled on a fourth day. One of his reported nominees, Ian Taylor, an oil executive at Vitol and party donor, has asked for his name to be removed.
Allies of Theresa May have tried to distance the prime minister from the row by indicating she would do things differently, but she is refusing to block her predecessor’s list in case it sets a bad precedent.
However, Watson said the issue “will not go away for Theresa May because a single Tory donor has withdrawn from David Cameron’s cronies list”.
He said: “It has been reported that David Cameron proposes to hand out peerages to a large number of his friends, a move which would undermine the honours and appointments system and damage the reputation of our second chamber.
“The current suggested list of appointments is now utterly discredited and Labour should now end cooperation with the government on these matters. Until the prime minister can assure us that Cameron’s proposed list of crony lawmakers is dropped, Labour cannot legitimise this process by cooperating.
“I hope the other opposition parties will also consider boycotting the honours and appointments process until Theresa May agrees to act.”
There are reports the list has been held up because of Whitehall concerns about some of the names. One party donor, Michael Spencer, is said to have been already blocked by the Lords appointments commission.
Each committee has a majority of independent members, with one of them chairing discussions, and reviews nominations for specific activities such as sport or arts and media, according to the government.
A No 10 representative is invited to attend all meetings. The individual committees feed into the main honours committee, which then produces a list and its decisions go to the prime minister and then the Queen.
This article was written by Rowena Mason Political correspondent, for theguardian.com on Wednesday 3rd August 2016 19.59 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010