The prohibition on eating or drinking human blood is based on a concern that it could appear to an observer like consuming animal blood, which is Biblically prohibited.
For this reason, if the blood is clearly visible in the milk, you should not give it to your baby. If it is not visible, than you may use it. If your baby is nursing directly from the breast, you can consider it not visible.
Although cracked nipples are fairly common, they are a generally a sign that the latch is not optimal. Please consider consulting a lactation consultant or your physician for treatment.
Please write back with any further questions.