Dananjaya's bowling action had come under the scanner during the first Test against New Zealand in August this year.
Lasith Malinga picked up four wickets in as many deliveries for the second time in his international career.
Malinga returned career-best figures of 5-6 to bundle New Zealand, who won the series 2-1, for 88 while chasing 126 in Kandy.
The 36-year-old speedster went on to complete a hat-trick and took four wickets in four balls.
The hosts, who trail the three-match series 2-0, have made two changes to their starting line-up from the previous loss on Tuesday.
Sri Lanka vs New Zealand Dream11 Team - Check My Dream11 Team, Best players list of 2019 T20, New Zealand Dream 11 Team Player List,
Injury-plagued New Zealand have called up Hamish Rutherford for their third and final T20I against Sri Lanka on Friday.
Sri Lanka have already lost the three-match T20I series, having lost the first and second match of the series by five and four wickets respectively.
Rutherford, who has played 16 Tests, four ODIs and seven T20s, will join the squad on Thursday, head coach Gary Stead confirmed.
Colin de Grandhomme tonked three sixes and couple of boundaries in his 46-ball 59.
Kiwi skipper Tim Southee returned impressive figures of 2/18 and fellow paceman Scott Kuggeleijn also took two wickets.
The hosts, who trail the three-match series 1-0, have made one change from their opening loss on Sunday with Kasun Rajitha making way for Lakshan
Given the problems both the sides are left to face, it looks to be an evenly matched encounter.
New Zealand overcame a shaky start to beat Sri Lanka in the first T20I on Sunday night to take 1-0 lead in the three-match series.
Full details of when, where and how you can watch and follow Sri Lanka vs New Zealand 1st T20I at Pallekele International Cricket Stadium, Pallekele.
IND 62/2 OVERS: 26.0
AUS 369 (115.2 Ovs)
IND trail by 307 runs
Sri Lanka vs England - 1st Test
SL 62/0 OVERS: 27.1
ENG 421 (117.1 Ovs)
SL trail by 224 runs
United Arab Emirates vs Ireland - 4th ODI
United Arab Emirates
Match Postponed
Bangladesh vs West Indies - 1st Test
03 Feb, 2021 09:30 IST
Zahur Ahmed Chowdhury Stadium, Chattogram
Sri Lanka vs England - 2nd Test
22 Jan, 2021 10:00 IST
Galle International Stadium, Galle
Pakistan vs South Africa - 1st Test
26 Jan, 2021 10:30 IST
National Stadium, Karachi
Pakistan vs South Africa - 2nd Test
04 Feb, 2021 10:30 IST
Rawalpindi Cricket Stadium, Rawalpindi
Afghanistan vs Ireland - 1st ODI
21 Jan, 2021 11:00 IST
Sheikh Zayed Stadium, Abu Dhabi
Afghanistan vs Ireland - 2nd ODI
24 Jan, 2021 11:00 IST
Sheikh Zayed Stadium, Abu Dhabi
Afghanistan vs Ireland - 3rd ODI
26 Jan, 2021 11:00 IST
Sheikh Zayed Stadium, Abu Dhabi
Bangladesh vs West Indies - 1st ODI
20 Jan, 2021 11:00 IST
Shere Bangla National Stadium, Mirpur
Bangladesh vs West Indies - 2nd ODI
22 Jan, 2021 11:00 IST
Shere Bangla National Stadium, Mirpur
Bangladesh vs West Indies - 3rd ODI
25 Jan, 2021 11:00 IST
Zahur Ahmed Chowdhury Stadium, Chattogram
United Arab Emirates vs Ireland - 2nd ODI
20 Jan, 2021 11:00 IST
Sheikh Zayed Stadium, Abu Dhabi
United Arab Emirates vs Ireland - 3rd ODI
30 Jan, 2021 11:00 IST
Sheikh Zayed Stadium, Abu Dhabi
Sri Lanka vs England - 2nd Test
22 Jan, 2021 10:00 IST | 04:30 GMT
Galle International Stadium, Galle
Australia drew with India
South Africa vs Sri Lanka - 2nd Test
South Africa beat Sri Lanka by 10 wickets
New Zealand vs Pakistan - 2nd Test
New Zealand beat Pakistan by an innings and 176 runs
India beat Australia by 8 wickets
South Africa vs Sri Lanka - 1st Test
South Africa beat Sri Lanka by an innings and 45 runs