Wash and dry baby potatoes, then halve or quarter them into uniform 1-inch pieces.
Slice kielbasa into ¼-inch rounds on a diagonal. Core and seed bell peppers, cutting into 1-inch pieces. Slice onion into half-moons and mince garlic.
Heat olive oil and butter in a 12-inch skillet over medium-high heat. Add potatoes cut-side down in a single layer, season with salt, pepper, garlic powder, and smoked paprika. Cook undisturbed for 4-5 minutes per side until golden and nearly tender. Transfer to a plate.
In the same skillet, arrange kielbasa slices in a single layer. Cook undisturbed for 2-3 minutes per side until deeply browned. Transfer to the plate with potatoes.
Reduce heat to medium. Add sliced onions with a pinch of salt and cook for 3-4 minutes until softened. Add minced garlic and onion powder, stirring for 30-45 seconds until fragrant.
Add all three colors of bell peppers to the skillet. Cook for 3-4 minutes until slightly softened but still crisp-tender. Season with remaining smoked paprika, salt, and pepper.
Return browned kielbasa and cooked potatoes to the skillet. Gently toss to combine and cook for 2-3 minutes over medium heat to allow flavors to meld.
Remove from heat, sprinkle with fresh parsley, and serve hot directly from the skillet or in individual bowls.