Once you find and rescue the scared dolphin from the sharks that are blocking his escape, head back to the stone circle and wait for the dolphin to get there (he takes his time). Collect the Vigour Glyph that is hiding in the centre of the main area and while you have boosted strength, knock the top of on of the stone spikes off into the centre of the circle.

This will reveal the exit of the level (well, the first exit anyways) which contains the Octopus. Make sure that the scared dolphin swims down to the octopus with you, and once you are at the lowest point of the level, sing to the dolphin and he will go and get himself caught, thereby distracting the octopus and allowing you to swim underneath his tentacles and leave the level.