Actually it appears in the Thursday Feb 2 1865 entry from Milroy's diary Tullahoma Tn.

Referenced in Tennessee in the Civil War: Selected Contemporary Accounts.... pg 255 - 256.

"There is no salvation except by blood. I started Lt Col Stauber of the 42 Mo. V.I. with an expedition of 300 men today to evangelize the country between Elk and Tenn rivers in Guerrilian-Mo. style - that is by fire and blood. I have by experience become a firm believer in the doctrine that "There is no salvation except by blood." There is nothing like it for the poison which brought on bushwhacking, robbing, thieving, etc. I find fire and blood properly administered to be perfect balance."

The entry is also referenced to page 8-9 of the Papers of General Milroy.

There is a quite long letter to his wife dated Feb 12th 1865 which really gives a window into his philosophy re guerillas. It repeats his blood and fire commentary. It is on page 258 of Tn in Civil war and is reference to Milroy's papers pg 495-96

Try:
https://books.google.com/books?id=9NTP9lGMHyQC&lpg=PA258&vq=milroy%20missouri&pg=PA258#v=snippet&q=milroy%20letter&f=false

Hope this helps... JJR