> etymonline points out that the form with a better-in-some-sense claim to be "correct" is dwarrows, not "dwarfs". But that term was uncommon enough that it completely died out.
This form appears in LOTR in "Dwarrowdelf", given as the translation of the Dwarvish name "Khazad-dûm" of Moria. https://en.wikipedia.org/wiki/Moria_(Middle-earth)
etymonline points out that the form with a better-in-some-sense claim to be "correct" is dwarrows, not "dwarfs". But that term was uncommon enough that it completely died out. ( http://www.etymonline.com/index.php?term=dwarf )
As I mentioned sidethread, "dwarves" is a natural extension of what happens with other common English words ending in f, making it difficult to argue that it is somehow incorrect.