1.Preheat oven to 180°C (160°C fan-forced). Line a 12-hole standard muffin pan with paper cases.
2.In a small bowl, beat butter and sugar with electric mixer until light and fluffy. Add combined coffee and water, then beat in eggs, one at a time, beating until just combined between additions. Transfer mixture to large bowl.
3.Stir in sifted flour and milk. Divide mixture among cases. Press 3 caramel halves into the centre of each cake; cover with batter.
4.Bake 20 minutes or until browned. Stand in pan 5 minutes; turn, top-side up, onto wire rack to cool. Serve dusted with sifted icing sugar.