Surrounded sorceress possessing large diamonds (7)

I believe the answer is:

circled

'surrounded' is the definition.
('circle' can be a synonym of 'surround')

'sorceress possessing large diamonds' is the wordplay.
'sorceress' becomes 'circe' (figure of Greek myth).
'possessing' means one lot of letters goes inside another.
'large' becomes 'L' (eg in clothes sizes).
'diamonds' becomes 'd' (abbreviation in card games).
'circe' placed around 'l' is 'circle'.
'circle'+'d'='CIRCLED'

(Another definition for circled that I've seen is " highlighted with pen?".)

I've seen this clue in The Telegraph.

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