The win sent them four points clear at the top, but with closest rivals Barwell and Whetstone unable to play and with games in hand.
Foxes started the better and wide player Cameron Ainge was quickly into the action, but Smith and Steans were unable to force the ball in from his dangerous crosses.
Ainge fired straight at the keeper who then made a fine save from Smith’s drive.
A good move down the left from Kotarba and Walker worked an opening, but Smith fired across the face of the goal from close range.
At the other end, the defence of Wilkinson, Nickolls, Lovegrove and Lauchlan looked sound, but they were given a warning when Dynamo’s speedy left winger flashed a shot wide after a quick break.
And seconds later skipper Joe Nickolls was given his marching orders after he was accused of spitting by the linesman, an allegation the player and his team-mates disputed.
A series of corners and half-chances kept up the pressure, and five minutes from half-time, Melton finally got their noses in front.
Thorpe, Horobin and Steans put Smith clear only to see him felled from behind. The striker converted the penalty himself, driving a left-foot shot into the corner.
Foxes remained in the driving seat after the break despite being a player short with Kotarba, Lewis and Horobin bossing midfield, and forwards Steans and Smith looking sharp.
Steans played through Smith who fired wide before Smith returned the favour, but the keeper came out well to make a superb block from Steans.
Smith had a goal chalked off for offside, while keeper Connor McNeight had to be alert to save a fierce shot.
Melton looked to have sealed the game with 10 minutes left when winger Kenny Jones won and took a corner on the right which landed perfectly for Smith to fire in.
Dynamo pulled one back in the dying seconds with a close-range finish.
Foxes: C. McNeight, C. Lovegrove, J. Nickolls, A. Lauchlan, G. Wilkinson, A. Walker, A. Horobin, L. Thorpe, K. Jones, A. Kotarba, C. Ainge, S. Smith, C. Steans, J. Bates, H. Mayes.
* On Sunday, title favourites Barwell are the visitors to the All England Ground. Kick-off 2pm.