Preheat the oven to 180 °C. Line & grease an 8 inch pan.
Puree the paneer in a blender till smooth.
Lightly whisk together milk, paneer and vanilla in a medium bowl.
Place dry ingredients in a large bowl and mix on low-speed for 30 secs, until blended.
Add butter & half of the paneer mixture, and mix until dry ingredients are moistened. On medium speed beat for 1 minute. This will aerate and develop cake's texture. Scrape down sides.
Add the remaining paneer mixture in 2 batches, beating for 20 secs between each addition. Scrape down sides.
Pour batter into prepared pan. Smooth surface with spatula. Baked for 45 mins.
Let cake cool on a rack in the pan for 10 mins before inverting onto a greased wire rack.