Add the powdered sugar and meringue powder to a mixer bowl and mix for 30 seconds using the paddle attachment. (It's not necessary to sift the sugar beforehand.)
Add the vanilla to the water. With the mixer on its lowest setting, slowly add the water/vanilla mixture to the dry ingredients. As the water is added, the icing will become thick and lumpy. Continue adding the remaining water until the mixture reaches a honey-like consistency. At this point, turn the mixer to medium speed for 1 minute. After the first minute, turn the mixer to high speed and mix an additional 2 minutes. Use a spray bottle to get extra powdered sugar off the edges of the mixing bowl. Immediately remove the icing and place in an airtight container.