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Preheat the oven to 325°F.
Lightly grease 8×8 inch baking dish, set aside.
Whip the egg whites until stiff peaks form, set aside.
Beat the egg yolks and powdered sugar until pale yellow.
Mix in melted butter and the tablespoon of water (for about 2 minutes) until evenly combined.
Mix in the flour until evenly incorporated.
Slowly beat in the milk and vanilla extract until well combined.
Fold in the egg whites (⅓ at a time, then repeat until all of the egg whites are folded in).
Pour the batter into the pan and bake for 40-60 minutes (until the cake is barely jiggly in the center).
Cool the cake completely before dusting with powdered sugar.