What causes this bokeh / lens flare effect?

The scene that I was shooting looks like that:

I intentionally defocused and got that:

The camera is a mid range Canon DSLR with a 100 mm prime lens and both pictures were taken from a tripod at a distance of ~2km.

What is causing the rainbowish flare around the bright white light sources? And why does it only occur for them?

May this be caused by the fact that these are LED floodlights? Or is this just due to the brightness? What is going on here?

Answer

The grid of rainbow flare is caused by strong light reflecting off your camera's sensor pixels, forward towards a surface (such as the rear element of your lens, or perhaps the IR filter over your camera's sensor if it is not bonded to the sensor's color filter array and/or microlenses). The light is then bounced back towards your sensor again, but greatly attenuated.

It's the 2D grid nature of your camera's sensor (like all digital cameras) that is causing the regular gridlike pattern.

Note that every surface inside a camera and its lens reflects light. Optical elements are very smooth, and therefore reflect specular (distinct) light. Some elements are coated, specifically to reduce reflections and therefore glare. The coatings don't entirely eliminate reflections, but they to greatly reduce, or attenuate, the reflections. Thus, the other lights in your image actually do reflect off the sensor and back, just like the brightest lights. But reflections from the dimmer lights are so much dimmer than the light they came from, that they aren't visible. It is possible they could be teased out if you cranked the exposure in post processing. But it might also be possible that their reflections were too faint to pick up at the ISO and shutter speed you used.

You can see a similar effect by shining a flashlight directly at a dark LCD monitor. It's a bit difficult to photograph, but very easy to see with your eyes. You will see an interference pattern caused by multiple near-parallel light rays bouncing off the individual pixel elements of your LCD. Some of the rays will constructively interfere, while others will destructively interfere, canceling each other out. Depending on the layout and orientation of the color pixels in your monitor, you probably won't see the same perfect grid pattern.