Effective use of output signal of a watchdog timer
With option B, you'll need a separate supply for the watchdog. Plus, interrupting power to the entire circuit is drastic step that will make other things (such as debugging) that much more difficult.

It would be better to design the system so that the microcontroller has the ability to reset/restart all of the other functional blocks under firmware control, either individually or as a group. Then the watchdog's only duty is to make sure the microcontroller itself is operating properly, which means that option A is the proper way to use it. Whenever the microcontroller gets reset, it then resets everything else as needed.