Curtis Woodhouse has made his second signing at the Holy Blues, with Hull City prospect Billy Chadwick joining the club this week.
Dunne, 22, joins from S/East side Sheffield where he has scored eight goals in 14 appearances this season.
"Mitchell is a player that will get the fans off their seats, really quick and direct with a good eye for goal," Woodhouse told the club's official website.
"He has great energy and will be a real handful for defences in the league.
"I’m delighted to get Mitchell Dunne to the football club, an exciting player with electric pace and a real eye for goal. Mitchell ticks all the boxes of players I’m looking at recruiting to the football club. He’s quick, very direct, very athletic, very fit and hungry to develop and improve.”
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