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Grate potatoes and onion. Transfer to colander and squeeze mixture to press out as much liquid as possible.
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In a large bowl, mix egg, salt, pepper, flour and baking powder. Add potato and onions, and mix well.
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Heat oil in a deep, heavy skillet.
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Drop about 2 tablespoons of potato mixture into the pan for each pancake. Flatten with back of spoon so each pancake is about 2 1/2 to 3 inches in diameter.
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Fry over medium heat for about 4 to 5 minutes on each side, or until golden brown and crisp. Turn carefully with 2 spatulas so oil does not splatter.
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Drain on paper towels.
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Before frying each new batch, stir potato mixture. If all the oil is absorbed, add a little more to the pan.
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Serve hot with applesauce, or sour cream, or sugar.