but i could totally see it being used in combat to try (and fail) to shut down the encounter

If you don't want the feature to be used in battle, you should change it, because as written, it's clearly a battle-oriented feature. Changing the casting time to 1 minute, for example, would work. Or maybe make it only work on unconscious creatures.

do you think this could be fixed by allowing combat to continue within the dream

That would be very difficult to manage. You would need a second battlemap for the dreamworld, but the cleric can change the environment at any time, with no action required nor limitations on what they can actually do; additionally, the different time flow means that a turn inside the dream equates seven(-ish) turns in the real world, which is a nightmare to keep track of.

I'm not a fan of features that require so much DM-fiat to work. The feature text should have clear rules, boundaries, limitations and set the proper expectations for how it works and what it can actually do. It also helps set the correct expectations from the player that chooses to play your class. As-is, I'd have a hard time picking it over any other cleric class, because I wouldn't know what half of the class' features are meant to do.

It's also difficult to give a proper evaluation or recommend specific fixes because I have no idea of how the Dream World is supposed to work.

The other user, @owenfromcanada@lemmy.world, mentioned that the feature is very reminiscent of Tel'alan'rhiod, which I agree. You could take inspiration from that to craft your feature. In case the similarities are coincidental and you don't know what TAR is, it's the dream world from Robert Jordan's Wheel of Time. People frequently come and go into TAR while sleeping, but only skilled or trained individuals can control the flow of the dream and use it to their advantage.

Characters can enter TAR, travel to a different place, and exit TAR from the place they travelled to, which allows them to "fast travel" to different locations; they can teleport, talk to, and spy individuals who also happen to be in TAR; they can examine the environment (which is a distorted mirror of the real world) to try and secure informations about the place from its mirrored copy in TAR; they can also, of course, fight and die in TAR, like you proposed, and skilled dreamwalkers can use their abilities to shape the dreamworld to their advantage, which could translate into codified lair actions that the Cleric player can use (or maybe perform a contested check every round, and the winner is the one who can use the lair action that turn).

These are just random ideas, I honestly don't know what your plans for the dream world are.