Preheat oven to 350 degrees and prepare a 9x13 baking dish by spraying with nonstick cooking spray. Set the pan aside.
Whisk together the milk and cornstarch in a small sauce pan. Add the butter, salt, pepper, and paprika. Heat over medium-low heat until it comes to a boil, whisking frequently.
Once it reaches a boil reduce the heat and allow to simmer for one minute. Remove from heat and stir in one cup of cheddar cheese.
In a large bowl add the frozen diced potatoes. Pour the cheese mixture over the potatoes and stir to mix.
Next add in the sour cream and stir to combine all ingredients. Pour the potato mixture in the prepared baking dish.
Bake uncovered for 35 minutes. When 10 minutes is 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.