“It is as though he likes people to stay together as one group.”
Accordingly, the ḥadith has nothing whatsoever to do with sitting in circles—neither affirming it nor prohibiting it.
The Prophet ﷺ once came upon a circle of his Companions and asked, “What has made you sit here?” They replied, “We are sitting to remember Allah and to praise Him for guiding us to Islam and for the favors He has bestowed upon us”—in another wording: “bestowed upon us through you.” He said, “By Allah, is it only this that has made you sit?” They answered, “By Allah, nothing has made us sit except that.” He then said, “I did not make you swear out of suspicion; rather, Gabriel came to me and informed me that Allah is boasting of you before the angels.”
This narration comes from Muʿāwiyah ibn Abī Sufyān. Muslim—whose version has been cited—recorded it, as did al-Nasāʾī, al-Tirmidhī, and Aḥmad through the chain of Marḥūm ibn ʿAbd al-ʿAzīz from Abū Naʿāmah al-Saʿdī, from Abū ʿUthmān, from Abū Saʿīd al-Khuḍrī, from him. The alternative wording is that of al-Nasāʾī and Aḥmad.
He ﷺ also said, “Whenever a group of people gather”—or, in another version, “There is no group of people who gather”—“in one of the houses of Allah to recite [and study] the Book of Allah and review it among themselves, tranquility descends upon them, mercy envelops them, the angels surround them, and Allah mentions them among those who are with Him.”
This ḥadith is narrated by Abū Hurayrah and is found in Muslim, Abū Dāwūd, Ibn Mājah, and Aḥmad.