The best I can find is that this term, meaning killing a fellow soldier, came about during the Vietnam war. Does anyone have a date on this word?
Frag, n. & v., a fragmentation bomb or grenade, 1943, to kill someone, especially a superior officer, with a fragmentation weapon, 1970. Also a clipping of fragmentary order, an amendment to a previously issued order, also frago, 1962.
Fairly detailed old discussion here.