The most common and most likely answer to this crossword clue is the 7 letter word WATCHER
I've seen this crossword clue in The Times
W
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More clues leading to the result WATCHER
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The straight part
We know that "Observer" is the straight/definition part of the clue. The straight part is often a synonym or definition, in this case observer = watcher.The cryptic/wordplay part
In cryptic crossword there's often an wordplay/cryptic part as well.This part involves a more complex hint, such as an anagram, homophone, hidden word, etc.
Sadly, We don't have an explanation for this specific crossword clue yet.
Crossword Answer definitions
WATCHER noun- Someone who watches or observes.
- Someone who keeps vigil.
- A guard.