Fowler's "Modern English Usage" says
"The traditional pl. form in BrE is dwarfs, but dwarves is now increasingly being used, as it has been for a long time outside the UK. I have examples of dwarfs from BrE (C. S. Lewis, P. Lively, local and national newspapers) and AmE (R. Merton, P. Roth) sources; and of dwarves from BrE (A. Brookner, J.R.R.Tolkien, local and national newspapers) AmE (J.Updike, a Chicago newspaper). NZ (M. Gee, Rosie Scott). and S. African (J.M. Coetzee, D. Lessing) sources."
In summary then Fowler, the accepted authority, allows us to choose for ourselves between dwarfs and dwarves citing impeccable sources for both derivations.
Interestingly for those who like to rely on the Microsoft spell checker whilst it demands that we change dwarves to dwarfs it wants us to change wharfs to wharves ~ but that is another argument.
I suggest we toss a coin ~ unless anyone has a PORG (person of restricted growth) to hand in which case we could toss the dwarf.