Blackwell is currently under contract negotiations with the Blades board but could refuse to sign the contract as his name has been linked with a manages job at former clubs Stockport County and Huddersfield Town this season.
With the Blades being in the Football Association Cup and 3rd in the Nationwide League, Warnock believes that Blackwell would be making a mistake if he did leave the Bramall Lane club.
He said: "It has to be a very good club for Kevin to leave and he would be foolish to leave a successful club like this.
"If he felt the opportunity was better than being my number two then he has to take it but he has an important role to play here. Kevin has been vital this season," Warnock told the club's official website.