The 'Circle Of Pain' is mentioned by the Circle dolphin in Shrine Of Controversy. When you reach the Circle Shrine, make sure you are facing the shrine and swim to the bottom of the level.

Once you get near the bottom, you will see a large industrial pipe coming out of the ground and going into the wall, atop which is a large wheel with a handle that has gas escaping from it. This wheel is the 'Circle Of Pain' and you task is to turn it one rotation clockwise to stop the gases escaping from it.

After you have completed the task the Circle Dolphin will allow you to lead him to the Central Shrine to allow you to complete the level.