Is the brother considered a martyr given the aforementioned circumstances, and is burying him in his blood-stained clothes correct? If not, how can the mistake be corrected?

Whoever among Muslims is killed unjustly is a martyr in the afterlife. However, according to worldly rulings, they are washed, shrouded, and prayed over like other deceased Muslims. This is the view of the majority of scholars. As for the Hanbalis, they believe that someone killed unjustly is a martyr in both worldly and afterlife rulings, and thus is not washed, shrouded, or prayed over.

If a deceased person is buried without ghusl (definition) (washing), shrouding, or prayer, their grave should not be exhumed after a period during which the body would have decomposed, or if the grave has already concealed the deceased from people's sight, or if it is possible to pray over the grave.