The integrity decisions for cracked pipelines can be made based on the conventional Finite Element Method (FEM). However, it is extremely time-consuming due to the requirement of remeshing to continuously conform to the geometric discontinuities as the crack propagates. The more recently developed Extended Finite Element Method (XFEM) provides a more robust approach in which a crack can propagate through the finite element analysis mesh and thus alleviates the requirement for remeshing. However, the current criteria for crack initiation and propagation in XFEM framework have not been calibrated to pipeline steels. The current built-in criterion in Abaqus assumes a fixed value as the damage strain. Crack initiation occurs after this strain is exceeded. However, the accuracy of numerical crack propagating path is questionable, especially in a side-grooved single edge notched tension (SENT) model. Faster crack initiation at specimen side over the center conflicts with the actual crack propagating path obtained from a physical test. This paper develops a new crack initiation criterion which defines a variable damage strain as a function of the stress configuration at the crack tip. The criterion is modified from the Mohr-Coulomb fracture criterion as a function of stress triaxiality and Lode angle parameters. The damage strain exponentially decreases as the stress triaxiality increases. This paper presents a parametric study on the effects of material parameters considered in the criterion on the development of damage strain locus. The new crack initiation criterion is applied to a side-grooved SENT model, in which the corresponding failure mechanism is defined by the user’s subroutine UDMGINI in Abaqus.