I had something similar on my Series 4.
If you go into the Watch App on your phone > General and scroll down you will see a Storage line. Tap that and you should see the software update installation file.
Delete that and then check for software updates again.
A couple of other tips
* If your S3 is low on storage deleting Watchfaces can be helpful
* You can speed up the transfer of the update to your Watch significantly, if your iPhone and Watch are on the same Wifi network by completely turning off Bluetooth on your iPhone in Settings (not the Control Centre). This will force the transfer to go via Wifi rather than Bluetooth (ignore the messages telling you to turn on Bluetooth until after the update has completed.