Sauté onion in butter in a large skillet until tender. Add tomatoes, water, parsley, paprika, salt, and pepper; cook over medium heat 5 minutes. Remove from heat. Strain mixture through a sieve; discard vegetables. Return strained liquid to skillet; bring to a boil. Reduce heat to low.
Combine cornstarch and a small amount of water to form a smooth paste. Stir into strained liquid. Cook mixture, stirring constantly, 1 minute or until thickened and bubbly. Serve sauce hot with baked fish.