Circular type references in TypeScript can cause compilation failures because TypeScript’s type system tries to resolve the types infinitely, leading to errors. These occur when two or more types directly or indirectly reference each other, causing an endless loop during type checking. The solution is to refactor the types to break the circular dependency. One approach is to restructure the code to introduce an intermediary type or interface that acts as a bridge, removing the direct dependency between the two types. Another option is to use lazy evaluation of types, where the type is only resolved when it’s needed. This can be achieved by wrapping the type in a function or using a type alias that defers its evaluation. By carefully analyzing the dependencies between types and restructuring them, you can prevent circular references and ensure that the TypeScript compiler can successfully resolve all types.