Being a croatian i'm pretty interested in the subject of the terrible holocaust in Independent state of croatia which not only included jews, gypsies, communists etc but also included the serbian population. It is pretty incredible that the germans allowed it because the serbians where also under german control and had there own puppet governemnt. It's a really tough subject here in croatia, and unfortunately a lot of people are still sympathetic to the puppet regime that Hitler created. I'm not sure is there any expert on yugoslavia here but if there is i would be glad to hear a good explanation.
There were some reactions both from Nedić's Serbia and Germany itself. Basic context in 1941 and '42 would be the unofficial NDH policy of three thirds: one third of Serbs were to be killed, one third expelled, and one third converted to Catholicism.
Mass killings had two major effects that concerned Germans, they provoked and sustained a considerable armed resistance and through refugees they destabilized Serbia itself. So, very soon the original German sanctioned plan, to expel a lot of Serbs from Croatia proper and replace them with Slovenes (Slovenia was to be Germanized, as it was a part of Third Reich) was abandoned, and NDH was forbidden from mass expulsions of Serbs into Serbia.
Germans also protested to killings, but it can be said more on aesthetic than ethical grounds. Two mass killings in Glina are indicative. On first, mass graves were prepared in advance in forests outside Glina, people brought by truck to them, executed and buried there. On second, people were rounded up in orthodox church, promised safety through conversion, but the church was closed and burned down with people inside. First event was just fine as far as Germans were concerned, while the second provoked complaints and reprimands. It was considered that first was much less public, and therefore provoked much less future armed resistance.
I'm not aware for any direct complaints by Nedić and his government about the killings in NDH. But, complaints about expulsions and destabilization of Serbia were expected to influence both expulsions and killings, because later also resulted in a lot of refugees to Serbia. Perhaps not much was expected of complaints about killings, because Germans themselves conducted mass killings within Serbia as retribution for armed resistance.