If they appear as small innocent beings they symbolize the manifestations of the unconscious. The words and behavior of these beings contain a rewarding and revealing message. If the dwarves are misshapen and ugly they reflect our ignorance and smallness. Fighting with a dwarf may be one of the means to attain true wisdom.
Dream dictionary: Dwarves dream meanings
…Some authors consider that dwarves, with the appearance of children’s stories, represent hidden feelings and it will be very important to be attentive to their messages, as they can be very revealing. It may also appear in the dream, nasty-looking dwarves and in this case they can represent our little character flaws that prevent us from achieving our objectives and that we necessarily need to oppose with discipline and strong will….