I think that you are looking for the adjectival form of "dwarf", which is "dwarven".
Elephants could have become dwarf-size(d) on the island off Italy’s boot in as little as 40 generations, according to new research.
Elephants could have become dwarven on the island off Italy’s boot in as little as 40 generations, according to new research.
I would call it redundant, in a way, because almost anyone could interpret "dwarven" or "dwarf-like" to be heavily connotated with stature just as are the words "giant", "colossal", "leviathan".
Nonetheless, it most surely is grammatical, and redundancy is almost always okay when it comes down to connotative distinctions. Your original form was using "dwarf size" as a double noun adjunct, another example of such being "chicken noodle" as used in "chicken noodle soup". When nouns act as adjectives, they are called "noun adjuncts". I call them adjunctive nouns, though.