The distribution of lateral earth pressure acting on underwater rock-socketed circular diaphragm walls was investigated using theoretical analyses. Emphasis was placed on the relationship between the motion modes associated with the magnitude of the radial deflection of the wall and the lateral earth pressure. A framework for determining the distribution of radial displacement-dependent earth pressure based on the horizontal differential element method was introduced. The applicability of the proposed theoretical method was then verified by comparison with results that considered earth pressure in limit state, and radial deflection of the wall and water level. The predicted earth pressure and its distribution were found to be in good agreement with the analytical solutions and observed data. Detailed parametric analyses were further performed to study the impact of soil properties, excavation radius, and water level on the distribution of radial displacement-dependent earth pressure under different radial wall movement modes of a circular retaining structure.