Newcastle are reported to be leading the race for Kilgallon's services, with Celtic, Burnley, Hull City, Wigan and Bolton also reported to be keen.
Blackwell is well aware that the exit of the talented defender will hit his side's promotion hopes hard, and believes it is essential that he is given scope to land a replacement.
"It's imperative that we try to keep our best players here," he told the Sheffield Star. "Obviously everyone knows what is going on with Killa.
"It's not certain that he'll leave but, if he does, then ideally we don't want to lose any more.
"We're on a good run and we are making progress in the table. But we're paper thin and we can't carry too many absentees.
"If he (Killa) does move on then we have to bring somebody else in."
Kilgallon was replaced at half-time of Sunday's 1-1 FA Cup third-round draw with QPR after complaining of a sore hamstring.
He could now be set for a brief stint on the sidelines, with Blackwell relieved the injury did not prove to be more serious.
"If it had gone properly then Killa would have been looking at six weeks out," he added.
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