These circles I believe are the wing tip vortex formed by the propeller tips or is it just due to the rotation of the propeller. How does this occur?
They are tip vortices formed by the propeller, just like the wing tip vortices.
The propeller produces thrust, just like the normal wing produces lift. As any wing of finite length produces vortices, the propeller also produces them and that is what you see in the picture.
This is not only limited to propellers. The helicopter rotors also do the same thing.
The pressure in the core of a vortex (such as that shed at the tip of an operating propeller, rotor, wing or extended flap) is reduced well below ambient pressure. The temperature is also lower than ambient because of the lowered pressure. If the temperature is lowered to the dew point, the water vapour will condense and become visible revealing the vortex core.
This is aerodynamic condensation. It is related to the over-wing condensation sometimes seen during landings and takeoffs in very humid conditions, and around the wings in extreme aerobatic manoeuvres. It is caused by the lowering of pressure and the accompanying lowering of temperature.