Dwarves rarely became Undead. Exceptions, such as the Ta-Fa-Lisch of Rhudaur, were the result of powerful magical influences. Remnants of the Petty-Dwarves, the Ta-Fa-Lisch were magically linked to nuggets of a rare, cursed mineral called Crospar. When these nuggets were destroyed, the Dwarvish spirits became free.
Small but terrifying, the Ta-Fa-Lisch appeared as shadowy forms with glowing eyes and teeth. They could see in the most impenetrable darkness and could only be struck by weapons when they attacked. Soundless, they sneaked up upon their victims to slay them, preferably by cutting the throat. They were so frightening that all who faced them had to resist a fear Spell.
As it is rare that Dwarves become undead, the GM must decide if the Ta-Fa-Lish are "true Undead", dead Souls, or rather Illusions, remains of old but long dead memories, phantoms with some power but no real soul and will.Canonically Dwarves may not be "reduced into shadows", which means their actual souls may not be bound and transferred into the wraith-world.This possibly however does not truly rule-out soulless Illusions or animated corpses.