Preheat the oven to 350°F (175°C).
In a large skillet, heat the olive oil or butter over medium heat. Add the diced onion and sauté until translucent, about 5 minutes.
Add the sliced Kielbasa sausage to the skillet and cook for another 5-7 minutes until browned. Remove from heat.
In a mixing bowl, combine the sour cream, milk, garlic powder, paprika, salt, and pepper. Mix well until smooth.
In the prepared baking dish, layer half of the sliced potatoes on the bottom. Spread half of the Kielbasa mixture on top, followed by half of the cheese. Repeat the layers with the remaining potatoes, Kielbasa mixture, and cheese.
Pour the sour cream mixture evenly over the casserole, ensuring it covers the top layer completely.
Cover the baking dish with aluminum foil and bake in the preheated oven for 30 minutes.
After 30 minutes, remove the foil and bake for an additional 15 minutes, or until the cheese is bubbly and the potatoes are tender.
Remove from the oven and let it sit for a few minutes before serving.