Heading home after a day of shopping together, Waterson and his girlfriend Adrian Hoare had placed Alfie in the rear footwell of the car.
It is understood that there were two other adults present, including 19-year-old Emilie Williams.
During a police interview Williams recalled how Waterson had his seat pushed back to stretch his legs out.
'Alfie was kicking the chair asking his to move it forward,' Williams said.
Williams revealed that Waterson then pushed the seat back into Alfie multiple times 'in a fit of childish temper'.
She added that when Alfie became upset, his mother told him to shut up.
When Alfie was later removed from the car by Waterson, Williams recalled that the toddler looked pale and was not moving.
The boy died in hospital three days later. The cause was reported as crush asphyxia caused by the car seat.
Following the tragic death, Waterson tried to cover up the crime by selling the car and pressuring witnesses to lie.
However, Hoare soon confided in her half-sister Ashleigh Jeffrey who then provided the taped conversation to police.
Appearing in the Central Criminal Court in London yesterday, Waterson pleaded guilty to manslaughter. He is due to be sentenced next week.
Alfie's mother was found guilty of child cruelty in March this year.