Mix together ground beef, grated onion, garlic, bread crumbs, egg, parsley, salt and pepper.
Form the meat patties using your hands. Make them into a tight ball (like a snowball), and slightly flatten with your hands into a rounded patty, keeping the edges rounded and width uniform throughout. Put on a plate or tray, ready for frying.
Lightly coat the meatballs in flour before frying. Gently shake off excess flour.
Heat oil into a frying pan until hot on medium-high. Fry meatballs until they are lightly golden cooked on both sides. (approx 2-3 minutes per side). They will continue to cook in the gravy.
Caramelize onions in 1 tablespoon of oil. Set side.
Saute the sliced mushrooms until the juices are release and they turn golden brown, about 7-8 minutes. Set aside.
Quickly flash fry the red peppers for about 1-2 minutes, maximum. Don't overcook the peppers or they will become mushy in the gravy. Set aside.
Russian Gravy Sauce
Melt butter in frying pan. Add flour and mix until smooth. Cook flour mixture for 2 minutes on medium-low heat constantly stirring. Careful not to burn the roux. Mix in tomato paste and cook for another minute.
Add the caramelized onions to the roux. Slowly whisk in 2½ cups of hot water (or broth). Keep stirring until lump free. Add a bay leaf. Bring to a boil, reduce and simmer for about 5 minutes until thickened. Add salt and pepper. If sauce is too thick, add more water.
Place the cooked meatballs in a large pot. Add the mushrooms and peppers over the meatballs. Pour the gravy covering the the meatballs, bring to a low simmer for about 10 minutes.