  The evolution of the spectral energy distribution during flares constrains
models of particle acceleration in blazar jets. The archetypical blazar BL Lac
provided a unique opportunity to study spectral variations during an extended
strong flaring episode from 2020-2021. During its brightest $\gamma$-ray state,
the observed flux (0.1-300 GeV) reached up to
$2.15\,\times\,10^{-5}\,\rm{ph\,cm^{-2}\,s^{-1}}$, with sub-hour scale
variability. The synchrotron hump extended into the X-ray regime showing a
minute-scale flare with an associated peak shift of inverse-Compton hump in
gamma-rays. In shock acceleration models, a high Doppler factor value $>$100 is
required to explain the observed rapid variability, change of state, and
$\gamma$-ray peak shift. Assuming particle acceleration in mini-jets produced
by magnetic reconnection during flares, on the other hand, alleviates the
constraint on required bulk Doppler factor. In such jet-in-jet models, observed
spectral shift to higher energies (towards TeV regime) and simultaneous rapid
variability arises from the accidental alignment of a magnetic plasmoid with
the direction of the line of sight. We infer a magnetic field of
$\sim0.6\,\rm{G}$ in a reconnection region located at the edge of BLR
($\sim0.02\,\rm{pc}$). The scenario is further supported by log-normal flux
distribution arising from merging of plasmoids in reconnection region.
