Soak the tamarind pulp in a 3-4 tablespoons of water for a few minutes and then strain out the seeds and skins. (See notes for difference between tamarind pulp and concentrated tamarind paste)
Chop up the galangal, garlic, lemongrass and shallots and put it into a food processor and blitz it to it is almost a paste. If you don’t have a food processor you can chop them by hand but chop them up finely. The finer the chop the less chunks in the sauce.
In a pan, add some oil onto medium heat and brown the lemongrass, shallot, garlic galangal mixture.
Add in the chopped birds eye chili and continue to cook it in the pan for a few minutes.
Turn down the stove to low heat and add in the coconut milk, fish sauce, tamarind water, lime juice, and water and stir until combined.
Add in the palm sugar and peanuts and continue to cook for 10-15 minutes
If you find the sauce too thick, add some more water to thin it out.
Taste it and adjust the flavour. Is it salty, sweet or sour enough for you? Everyone has a different preference on how they enjoy peanut sauce. Adjust accordingly by tweaking it with lime juice, sugar or fish sauce.