Heat the oven to 350 degrees. Spray a 13x9-inch baking dish with cooking spray.
In a 12-inch nonstick skillet, cook the onion in the oil for 3 minutes or until slightly tender. Add the potatoes and water to the skillet. Cover and cook for 10 to 15 minutes or until the potatoes are almost tender, stirring occasionally.
Stir in the pepper, cottage cheese and sour cream.
Spoon the mixture into the baking dish. Sprinkle with the shredded cheese and paprika.
Bake for 30 to 40 minutes or until bubbly and potatoes are tender. Let stand for 5 minutes before serving.