In a large stockpot melt butter over medium heat. Add onion, carrot, and celery and saute for 5 minutes, stirring occasionally, until soft.
Add diced potatoes, pour water/stock and milk, bring to a boil, and reduce heat to low. Simmer for 10-15 minutes, or until potatoes are soft, stirring occasionally every few minutes.
In a small bowl mix sour cream, flour, and sweet paprika.
When potatoes are cooked, stir in sour cream mixture and cook for additional 3-4 minutes, until soup thickens a bit. Season with salt and pepper to taste.
Serve warm, garnish with crispy diced bacon.
*Optional: with an immersion blender, blend soup to smooth consistency (I often do that, but I leave few chunks of veggies)