The issue was solved following the steps below:
#switch the /usr/bin/python link to point to current python link
cd /usr/bin
sudo mv python python.bak
sudo ln -s /Library/Frameworks/Python.framework/Versions/Current/bin/python python
Re-arrange the export command in order that it is placed before the virtualenv commands in my .bash_profile file:
PATH=/Library/Frameworks/Python.framework/Versions/2.7/bin:$PATH
export PATH
# needed for virtualenvwrapper
export WORKON_HOME=$HOME/.virtualenvs
source /usr/local/bin/virtualenvwrapper.sh
Re-Install setuptools, easy install and PIP. This is obviously needed in order that they work properly with the new python version:
sudo sh setuptools-0.6c11-py2.7.egg
sudo easy_install-2.7 pip
pip install virtualenv