Prepare the yeast mixture by combining warm water, active dry yeast, and granulated sugar in a small bowl. Let it sit for about 5 minutes until bubbly.

Sift together the all-purpose flour and salt in a large bowl. Set aside.

Add milk, vanilla extract, granulated sugar, and the egg to the yeast mixture. Whisk until smooth.

Gradually add half of the flour mixture to the wet ingredients and mix. Then add the remaining flour and softened butter, mixing until smooth and elastic.

Place the dough in a lightly oiled bowl, cover, and let rise in a warm area for at least 2 hours until doubled.

Heat vegetable oil in a deep pot to 360°F. Roll out the dough on a floured surface to 1/2 inch thick and cut into squares.

Fry the dough squares in batches for about 2 minutes per side until golden brown. Drain on paper towels.

Dust the beignets with powdered sugar and serve warm.