Pour milk into a large pot and bring to a boil over medium heat; watch carefully to prevent milk from boiling over. When milk begins to boil, pour buttermilk into the pot in a steady stream, stirring constantly. The milk will separate into curds and water.
Line a colander with cheesecloth. Pour milk mixture through the cheesecloth, reserving some of the strained liquid. Let milk mixture sit in the colander until curds are settled and dripping stops, about 2 hours.
Transfer strained curds to a food processor. Process until smooth and mixture can be formed into a ball. Add some of the reserved liquid and process again if mixture is too dry. The consistency should resemble firm ricotta cheese.
Turn cheese out onto a clean surface and knead until smooth. Form into a ball and wrap in plastic. Refrigerate until needed.
To cook paneer, heat oil in a large, heavy skillet over medium-high heat. Cut paneer into bite-sized pieces. Fry in hot oil until very pale golden brown, about 1 minute. Drain on a paper towel-lined plate.
