In a large bowl, whisk together the powdered sugar and meringue powder.
Add the warm water and vanilla extract (if using).
Using an electric mixer on low speed, beat the ingredients until combined and no dry lumps remain.
Increase the mixer speed to medium-high and beat for 5-7 minutes, until the icing is glossy and forms stiff peaks. If the icing is too thick, add more warm water a teaspoon at a time until desired consistency is reached. If it's too thin, add more powdered sugar a tablespoon at a time.
Transfer the icing to a piping bag or container and use immediately, or cover tightly with plastic wrap to prevent drying.
Notes
For different consistencies: For outlining, use a thinner icing (add more water). For flooding, use a slightly thicker icing. For intricate details, use a very stiff icing.