Put milk into a deep and heavy-bottomed pan and bring to the boil over high heat, stirring occasionally. Remove pan from heat and add the lemon juice and water while the milk is still hot; stirring vigorously until the milk starts to curdle.
Strain curdled milk through muslin or cheesecloth-lined sieve until all the whey has drained off.
Gather the corners of the muslin and tie together; gently squeeze to extract as much moisture as possible then hang muslin wrapped cheese for about an hour. Press the cheese under a heavy weight for about an hour or until cheese is firm. Discard the muslin cloth and cut paneer into cubes or desired shapes.