Put on your gloves and dig around the posts using your towel. Only dig deep enough to remove the grass, and make sure the shape -- square or circular -- around the post is even on all sides.
Line the dirt in the dug-out area with garden liner. Lining the dirt will ensure that grass will not grow back. If you don't want to kill the grass in this area, leave the dirt uncovered.
Fill in the lining or dirt area with stone. Place your chosen stones around the posts until you are happy with their position. Make sure no dirt or lining shows through.