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.