The answer to your question is the Mathmatician's Yes. They are legally obligated to report it (normally to their handlers after the fact in a timely manner) and they are allowed to continue searching for evidence for the larger crime. It's just one more list to charge the guy with when the government agency decides to move on the "target". The continuation of the investigation would hinge on how likely they can gather evidence on the guy from the initial complaint. Punching buy who is in debt in the face is different from punching a random guy in a sports bar over cheering the opposing team's victory.
What's more, undercover police may even have some authorization to participate in a crime in order to maintain cover!
Per FBI guidelines according to this article here, undercover agents are not allowed to commit any federal, state, or local crimes unless authorized by superiors. This often contains a list of specific crimes such as purchasing or selling of drugs (to establish a rapport with a targeted dealer) as well as a generalized "unforseen crimes" (i.e. technically, they can't Jwalk or speed. But if the target wants you to walk and talk with him as he illegally crosses the street OR wants you to do 75 in a 55, you can go ahead with that). And some aren't nearly as petty, though generally using physical force has to be very much justified and maintaining cover is never a defense to murder or other similar crimes. If the unforseen crime the agent participates in is over the top, they can share in the legal culpability.
Ultimately, the undercover and his superiors will make a determination of what charges will be brought against the target at anytime. The police do not have arrest and book a criminal for a known crime in an immediate manner, so long as they get it in before the statute of limitations is up on the incident. So if the target admits to punching a guy in the face to the undercover, the undercover should report it to his handlers, and they will determine if they need to execute the arrest or wait and continue on the investigation.