Generalizing @Rahul's solution (but, as we'll see, not-generalizing that solution), consider the plane, through the origin, with normal $(p,q,r)$ such that $p^2+q^2+r^2=1$. Of course, obtaining circular level curves in the case $p^2+q^2 = 0$ requires $a=b$ and is easily dispatched; similarly, $q^2+r^2 = 0$ and $r^2 + p^2 = 0$; so, from here on, we assume that at most one of $p$, $q$, $r$ is zero.
The plane is spanned by orthogonal unit vectors $\mathbf{u} := \frac{(q,-p,0)}{\sqrt{p^2+q^2}} \qquad \mathbf{v} := \frac{(-pr,-qr,p^2+q^2)}{\sqrt{p^2+q^2}}$
The point $u \mathbf{u} + v \mathbf{v}$ lies on the ellipse iff
$\begin{align} 1 &= \frac{(uq-vpr)^2}{a^2} + \frac{(-up-vqr)^2}{b^2} + \frac{v^2(p^2+q^2)^2}{c^2} \\ &= u^2 \left( \frac{q^2}{a^2}+\frac{p^2}{b^2} \right) + 2uvpqr\frac{a^2-b^2}{a^2b^2} + v^2 \left(\frac{p^2r^2}{a^2}+\frac{q^2r^2}{b^2}+\frac{(p^2+q^2)^2}{c^2}\right) \\ &=: A u^2 + 2 B u v + C v^2 \end{align}$
For the parameterized curve to be a circle, we must have $B = 0$ and $A=C$.
For $B=0$, we have either that $a=b$, or that (at most) one of $p$, $q$, $r$ is zero. Together, $a=b$ and $A=C$ (and $p^2+q^2+r^2=1$) imply $a=c$, so that the ellipsoid is in fact a sphere. On the other hand, $pqr=0$ and $A=C$ allow us to either solve for $p$, $q$, $r$ or derive other constraints on $a$, $b$, $c$:
Case $p=0$: We have, from $A=C$, that $\frac{1}{a^2} = \frac{r^2}{b^2}+\frac{q^2}{c^2}$, so that $q^2 a^2(c^2-b^2) = -c^2(b^2-a^2) \qquad r^2 a^2(c^2-b^2)= b^2(c^2-a^2)$
Since $c^2-b^2$, $b^2-a^2$, and $c^2-a^2$ are all non-negative, the $q$ equation requires $a=b=c$ and we have another sphere.
Case $q=0$: Here, $\frac{1}{b^2} = \frac{r^2}{a^2}+\frac{p^2}{c^2}$, which is the same as the above case, with $p \to q \to r \to p$ and $a\to b\to c \to a$. Thus,
$r^2 b^2(c^2-a^2) = a^2(c^2-b^2) \qquad p^2 b^2(c^2-a^2)= c^2(b^2-a^2)$
which allows solutions for $p$ and $r$ even for non-spheres. (This is @Rahul's case.)
Case $r=0$: Here, $\frac{q^2}{a^2}+\frac{p^2}{b^2}=\frac{1}{c^2}$, which is the same as the above case under the mentioned cycling of variables, so that $p^2 c^2(b^2-a^2) = b^2(c^2-a^2) \qquad q^2 c^2(b^2-a^2)= -a^2(c^2-b^2)$ Again, the $q$ equation implies that the ellipse is a sphere.
Consequently, @Rahul's circles are the only ones for non-spherical $E$.
Note. The fact that the three cases are cyclically related suggests that there should be an insightful, cyclically-symmetric way of writing the equation $A=C$, but I'm not seeing it.