Coarsely chop mushrooms to equal 1/2 cup; set aside.
Combine remaining mushrooms, water, onion, and salt in a large saucepan; bring to a boil. Reduce heat; cook, uncovered, 30 minutes. Transfer to container of an electric blender; process until smooth. Set aside.
Melt butter in a large saucepan over low heat; add reserved chopped mushrooms, and sauté 3 minutes. Add flour; cook 1 minute, stirring constantly. Gradually add milk; cook, stirring constantly, until mixture is thickened and bubbly.
Add pureed mushroom mixture, stirring well; cook until thoroughly heated. Stir in whipping cream, paprika, and pepper just before serving.
Ladle soup into individual serving bowls. Serve warm.