B737 Captain reported Tower issued a Low Altitude Alert and a go-around.

Narrative

Aircraft was vectored from downwind to final high on approach; initially turned to intercept at 3000 feet until established but approach controller then amended to 2500 feet. Aircraft was above glideslope so a corrective VS down was set to capture glidepath. VS observed to reach approximately 2300 FPM momentarily; then stabilized to less than 2000 FPM. GS captured from above and approach stable at approximately 1000 feet. Frequency transferred to ZZZ Tower but initial contact was delayed as we focused on a stabilized approach. Once in contact with ZZZ Tower they advised they had received a low altitude alert and instructed us to go around. Go-around conducted however climbed to 3000 which was mistakenly set during the approach; corrected to 4000 upon alert from ATC. Returned to land RWYXXR without incident.During taxi back we observed an aircraft behind us go around (did not note callsign or reason) and ATC advised that previous arrival also had a go-around due to same ATC low altitude alert.