Preheat oven to 350 degrees and prepare a 9x13 baking dish by spraying with nonstick cooking spray. Set the pan aside. In a small saucepan, whisk together milk and cornstarch. Add the butter, salt, pepper, and paprika. Heat the mixture over medium-low heat until it comes to a boil, whisking frequently. Reduce heat and allow to simmer for one minute, then remove from heat and stir in 1 cup of cheese.

Now, place the frozen diced potatoes in a large bowl. Pour the cheese mixture over the potatoes and stir to mix. Add the sour cream to the bowl and stir to combine all ingredients. Pour the potato mixture in the prepared baking dish. Bake uncovered for 35 minutes. When 10 minutes are left on the bake time, remove casserole from oven and sprinkle remaining cheese over the top. Return to oven and continue baking for remaining 10 minutes.