Preheat the oven to 350°F (175°C).

In a mixing bowl, cream together the butter and sugar until light and fluffy.

Add the eggs one at a time, mixing well after each addition.

Stir in the watermelon puree and vanilla extract.

In another bowl, combine the flour, baking powder, and salt.

Gradually add the dry ingredients to the wet ingredients, mixing until just combined.

Spoon the batter into a muffin tin lined with cupcake liners.

Bake for 20 minutes or until a toothpick comes out clean.

In a mixing bowl, beat together the cream cheese and butter until smooth.

Gradually add the powdered sugar, mixing until well combined.

Stir in the watermelon extract and milk until the frosting is smooth and spreadable.

Once the cupcakes are cooled, frost them with the watermelon frosting.

Decorate with watermelon slices or sprinkles if desired.