Brighton manager Chris Hughton before the match
The Blues have been keeping tabs on the 24-year-old for some time, but could now miss out as newly promoted Brighton enter the fray.
Diony has been in good form for Dijon over the past 12 months, scoring 10 goals in 35 Ligue 1 matches to help the club narrowly avoid relegation by a single point.
Saint-Etienne were showing interest in the attacker before they appointed Oscar Garcia, who has been Brighton manager himself in the past and has succeeded Christophe Galtier in the dugout at the Stade Geoffrey-Guichard.
Watford manager Oscar Garcia
So if Diony is considering a move then England looks to be his most likely destination and the prospect of playing in the Premier League with the Seagulls is probably an enticing one.
Chris Hughton's side were promoted from the Championship after finishing second behind Newcastle United and have already made their first move in the transfer market by securing club record signing Mat Ryan.
Brighton's manager Chris Hughton