The SRU released a statement announcing that the 24-year-old would require surgery, followed by six to nine months of rest and rehabilitation in order to recover.
And Cotter admitted the injury was a massive blow for the young centre who now faces a race to be fit for the World Cup in September.
"Alex was in a bit of discomfort," Cotter revealed, after Dunbar fell to the ground clutching his knee in training.
"He just went down on his own, it was a change of direction and then he went down. It's very unfortunate and he's obviously upset.
"If it is an ACL, it will be a fine cut (for Dunbar to make the World Cup), but they are pretty good at getting these types of injuries back, if that is the case.
"It's not as severe as it used to be but certainly it would be a setback for Alex."
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