In a dramatic collapse, New Zealand lost their last six wickets for only 29 runs after tea on Day 3 to leave Pakistan within touching distance of going 1-0 up in the three-match Test series at Abu Dhabi.
Resuming the innings at 200 for 4 after tea with both Nicholls and Watling looking set to give a formidable target to Pakistan, New Zealand were bowled out for 249, leaving Pakistan only 176 to win.
Imam Ul Haq and Mohammad Hafeez then came up with a solid reply reaching 37 for no loss at stumps.
While both Yasir Shah and Hasan Ali picked up five-wicket hauls for Pakistan, it was leggie Yasir Shah who actually turned the match on its by inducing an inside edge of Nicholls (55) that crashed back onto his stumps to end a 112-stand for the fifth wicket that threatened to take the game away from Pakistan.
Within 26 balls, 220 for 4 became 227 for 8, and it was left to the tail to get their side as close to a lead of 200 as possible. 175 was as much as they could manage, with Hasan returning to join Yasir with five wickets to his name, cleaning up Ish Sodhi and Trent Boult.
New Zealand were in danger of losing the Test early after three quick wickets fell in the space of just 22 runs in the first session with medium pacer Hasan Ali taking two in the same over.
But Watling survived a leg-before decision on review after umpire Bruce Oxenford raised his finger off Bilal Asif for 15. Watling took full advantage of the reprieve and added 67 in the second session without losing a wicket.
The early damage in the morning session was done by Hasan Ali (5/45).
Hasan, who had opener Tom Latham yesterday, trapped a dangerous looking Taylor leg-before with a sharp incoming delivery for 19 and then had Jeet Raval caught behind by wicketkeeper Sarfraz Ahmed for 46.
Raval had added 86 for the second wicket with Kane Williamson who made 37. Raval hit five boundaries in his 120-ball knock.
Resuming at 56-1 New Zealand had pinned hopes on their skipper Williamson. But it was Raval who smashed two boundaries and then took a single off Mohammad Abbas to take New Zealand into the lead.
But just 12 runs into the lead Williamson was bowled by leg-spinner Yasir Shah to a ball that beat the batsman's push and removed the bail.