System Information
Operating system: Windows-10-10.0.18362-SP0 64 Bits
Graphics card: GeForce GTX 1050 Ti/PCIe/SSE2 NVIDIA Corporation 4.5.0 NVIDIA 452.06

Blender Version
Broken: version: 2.83.5, branch: master, commit date: 2020-08-19 06:07, hash: rBc2b144df395f
Worked: (newest version of Blender that worked as expected) Have tested various versions and they all appear to do the same.

Short description of error
[Please fill out a short description of the error here]
--Circular Reference when you bake

Exact steps for others to reproduce the error
[Please describe the exact steps needed to reproduce the issue]
[Based on the default startup or an attached .blend file (as simple as possible)]

Open a new blender project.
Leave the default cube in place as this is good enough to replicate the error.
Switch to the Shading workspace.
Add a texture image node and select a texture file and assign the node to the base color of the principle BSDF node.
Now the CUBE should be coated with the selected texture.
Now duplicate the texture image node and place it somewhere convenient (this will be the texture for the baking process).
Select the duplicated texture image and select create new image. (This will not make a difference but for convenience simply select defaults presented.)
Now you will see a standalone texture image node ready for the baking process.
You may leave the UV maps and layouts to their defaults as this will not effect the outcome of replicating this error.
Now select the material properties and create a new material (material.001).
Select the material assigned to the cube (material) and copy the baking & texture image nodes.
Select the new material created (material.001) and paste the texture image nodes
Connect the texture image's node to the principled BSDF node base color.

Go to edit mode and assign material.001 to one of the faces of the CUBE.
The texture image node still shows it will also use the untitled baking image created for the original material.

If you now go ahead and bake, THE CIRCULAR image error pops up and destroys (although temporarily) your texture image.
No matter what you (the layman) do now, you will not be able to continue (I believe blender's baking image stacks are destroyed ONLY MY TAKE).

I've tried deleting the texture image node for the object and added a new texture image node with the correct image but this doesn't resolve the problem.

To correct the problem and continue baking:
Delete the texture image node used for the baking in material.001 (or whichever's image texture is reported circular in the message)
Add a new texture image node and select the untitled baking image as the destination.
You may also just copy the texture image node for baking from material to material.001 (if you so wish).

P.S.
It appears that to copy the texture image node for the material across materials (irrespective if you're going to change the text image used) creates the problem as I can repeatedly recreate and resolve the problem as stated above by just copying and pasting the texture image node from another material.

The search engines are loaded with rookies pleading for assistance with this problem and all of us are face with the same message: "You are creating the problem!"

It is very seldom that the experts will copy texture image nodes used for each of the materials, it's a lot quicker to just have your textures on hand and simply drag and drop them as they are required.

But what does us rookies know about speed, we copy and paste and this seems not to be OK in blender.

I've myself came to identify the source of this problem with a weeks sheer determination to find a way to resolve my issue without having to start my project all over again.

Hope this helps and you smart guys will provide a solution for us rookies. I'm prepared to assist in further tests if required and please let me know if my instructions for creating the issue needs clarification.